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Tax reality check

October 22, 2007

The year began with high hopes of substantive tax reform. Now, with just over two months left in 2007, reality has hit Congress.

Rather than the "mother of all tax reforms," it looks like we’ll get — again — some short-term fixes.

According to House Ways and Means Committee Chairman Charles B. Rangel (D-NY), his committee this week will likely see a stop-gap bill to address expiring tax breaks and alternative minimum tax concerns.

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The extender portion would continue a group of popular expiring business and individual tax benefits.

The tax breaks likely to be continued for individual filers are deductions for school teacher expenses, contributions to Archer Medical Savings Accounts, higher-education tuition and fees and state and local sales tax payments.

Outside possibilities for continuation are tax breaks for energy efficient home improvements and the ability of older IRA owners to roll distributions directly to charitable organizations. The private mortgage insurance write-off is part of the mortgage debt relief bill (blogged here), but it might get added here, too, just to make sure.

On the AMT front, the House bill is expected to contain a one-year patch to prevent the parallel tax system from affecting about 23 million American families in 2008.

Rangel’s goal is to get the bill to a full House vote before that legislative body adjourns in mid-November. Let’s hope so. Last year’s debacle with 2006 tax law not being set until the end of December wreaked havoc on filers and the IRS alike.

Meanwhile, over in the Senate, Finance Committee Chairman Max Baucus (D-Mont.) said his panel also could this week consider an extension of current AMT protections, but he wouldn’t commit to a one- or two-year fix. But the Senate is expected to look at extender legislation that would renew tax breaks for two more years.

"Mother" still in the House: Rangel said he has not abandoned his comprehensive tax overhaul plan.

But after meeting with House leadership and Ways and Means members, he decided that the larger bill should not be rushed. Rangel also plans to visit business and consumer groups next year to drum up support for the measure.

Payment problems: Of course, the bigger problem is how to pay for these continued tax breaks and AMT patch, not to mention the comprehensive tax code rewrite that Rangel wants.

It would cost at least $50 billion, according to Joint Committee on Taxation estimates, to extend the current individual AMT exemption amounts for another year.

Total repeal, say JCT number crunchers, would cost $800 billion if the president’s 2001 and 2003 tax cuts are allowed to expire in 2010; the price tag would balloon to $1.6 trillion if Congress continues those tax cuts.

Tax Foundation blogger Gerald Prante takes a closer look at funding issues in AMT Patch Appears Likely; "Pay For" Is Uncertain.

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TO WRAP UP 2026

It’s over! With October’s extended filing deadline behind us, it is now time to focus on year-end moves to reduce your 2026 tax bill. 

You’ll find ways to do just that on the Tax Tips page (see the More Tax Posts drop-down menu at the top of the blog), as well as the separate tax tip pages for each month, notably October through December. If you’re on the Tax Tips page, you’ll find a monthly list at the end of this column. If you’re on another blog page, you can head straight to the October tips; at the bottom of that tips page you’ll find links to all the other 11 months’ collections of tax advice.

Not to spoil what you’ll find in that tax advice, but it does cover such things as tax deductions for charitable donations, investment moves that could reduce tax due, and ways to max out your tax-favored retirement savings. 

Finally, as the year winds down, things get hectic. There are lots of other things to occupy our time, like the much more fun upcoming holidays. But don’t lose sight of taxes, since timing is key. To be of use, most tax moves must be made by the end of the tax year. That’s Thursday, Dec. 31, which also is the last business day of the year. 

So that you don’t miss that final tax year deadline, also keep an eye on the countdown clock below. It will keep you on top of just how much time is left to make important, tax-saving moves. (Note: I’m in the Central Time Zone, so adjust accordingly for where you live.)

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