Will Americans Get Our Tax Breaks Back?

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A tax form calculator broken pencil and bent paper clip shot the frustration of filing taxes
Even under the best of circumstances, it's hard to understand the tax code well enough to do smart tax planning. But when you can't even be certain what the tax laws are going to be in the year ahead, planning becomes almost impossible.

Unfortunately, lawmakers left millions of Americans in exactly that situation when they left for their winter break without making a final decision on whether to extend dozens of tax breaks that save American families and businesses billions of dollars. Those provisions expired Monday, meaning taxpayers will have to hope for the best but plan for the worst over these valuable tax breaks.

What's At Stake

Lawmakers have been aware since they passed their last short-term patch to the tax code that many treasured tax breaks were slated to expire at the end of 2013. Among them are breaks that help a wide variety of Americans.
  • Underwater homeowners have benefited from provisions that help them avoid having to pay taxes on money they "earn" as a result of banks forgiving all or part of their mortgage debt.
  • Taxpayers in states that have no state income tax or that charge relatively low tax rates have been able to deduct sales tax instead, but under current law, that isn't available for 2014.
  • Teachers won't be able to deduct what they pay out of their own pockets for classroom supplies.
  • Those who take public transit to will see the amount they can set aside in pre-tax income to pay for commuting costs drop from up to $245 a month to $130 a month. Those who drive to work could set aside $245 a month pre-tax for parking expenses in 2013; in 2014, they'll be allowed to set aside $250.
  • Popular provisions that offer tax breaks for educational expenses and energy-efficiency improvements will also disappear.
The most frustrating aspect about all this for taxpayers is that Congress almost always extends these tax breaks -- eventually. Yet most often, lawmakers only choose to extend the provisions for a single year, citing the budget cost of making them permanent. (Some cynics suggest lawmakers have other reasons.)

But for now, those who benefit from these tax breaks have to suffer the uncertainty of whether they're actually going to come back or not on an annual basis.

Is a Fight Coming?

The Senate actually had an opportunity in late December to pass legislation extending these and dozens of other tax breaks. Some senators tried to pass a bill to get these tax breaks renewed by unanimous consent. But other senators objected, stalling the bill under the Senate's byzantine procedural rules. (Even had they done so, such an attempt might have died in the House.)

That doesn't mean that these tax breaks are dead for 2014, however. Early in 2013, Congress passed laws that retroactively renewed many tax breaks that had expired at the beginning of 2012.

With a host of contentious issues on the political agenda, lawmakers might decide to use the same strategy in 2014, leaving taxpayers in limbo for another year.

However, there's reason for hope that our representatives in Washington might come to their senses, make the tax breaks permanent (or as permanent as anything is in Washington) and end the annual fight over extending them once and for all.

Until this year, the inflation-adjustment to the Alternative Minimum Tax was one of the most important tax breaks that got renewed on an annual basis. Each year, tens of millions of Americans were at risk of paying much higher taxes until lawmakers managed to pass legislation that set the exemption amount at a higher level. But as part of the compromise that extended some tax cuts in 2013, the higher exemption for the AMT was made permanent, and future inflation adjustments will now be made automatically. A similar move for other popular tax breaks could eliminate the uncertainty taxpayers face today.

Stay Tuned

Unfortunately, once lawmakers miss the Jan. 1 deadline, there's often little impetus for them to revisit these expired tax breaks until later in the year. Until they do, taxpayers will have no options but to voice their displeasure to their elected officials -- and do the best they can to prepare for all contingencies in 2014.

You can follow Motley Fool contributor Dan Caplinger on Twitter @DanCaplinger or on Google+.
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