Happy New Year! Tax returns for 2011 are barely begun but it is not too early to start thinking about tax planning strategies for 2012. This is by no means an all-encompassing list, so be sure to discuss your specific situation with your tax professional. Some important tax code changes for 2012 are:
- Each personal and dependent exemption is $3,800 - an increase of $100 over 2011.
- The 2012 standard itemized deduction rose slightly. A taxpayer filing as single (or married filing separately), saw a $150 increase to the basic deduction as it rose to $5,950. Married couples filing a joint return gained a $300 deduction to $11,900. Those filing as Head of Household have an additional $200 deduction as the amount increased to $8,700.
- The maximum earned income tax credit for low and moderate income workers rose to $5,891 for 2012, a $140 increase from 2011.
- Standard mileage rates regarding charitable miles driven remained unchanged at 14 cents per mile. The deduction for medical mileage changed to 23 cents per mile. Business miles driven increased to 55.5 cents per mile for most vehicles earlier in 2011 and that amount remains unchanged going into 2012.
- Though the credit amounts don’t change for 2012, the modified adjusted gross income threshold at which the lifetime learning education credit begins to phase out is $104,000 for joint filers and $52,000 for single filers. This is up from $102,000 and $51,000, respectively.
- Perhaps the item with the potential for greatest impact is the decreased Alternative Minimum Tax (AMT) exemption from $74,500 to $45,000 for a married couple. Single taxpayers and those filing Head of Household experience an exemption decrease from $48,450 to $33,750. Be sure to discuss this change with your tax professional - the potential impact could be significant.
- Lastly, the FICA ceiling rose to $110,100 from $106,800. The good news is that the employee rate remains at 4.2% at least through February 29, 2012. Currently, that rate is slated to increase to the historic rate of 6.2% after that date, but many believe the lower rate will be extended for the entire year. Touch base with your CPA in mid-February to see what happens.
- Depreciation is often a significant deduction for businesses. Unfortunately, two significant depreciation deductions decreased for 2012. The Code Section 179 deduction for equipment purchases is $139,000 of the first $560,000 of business property placed in service during 2012. This is down from $500,000 of the first $2,000,000 in 2011. First-year bonus depreciation also decreased to 50% of qualified property (down from 100%).
- Many other very specific changes occurred regarding certain employee fringe benefits, estimated tax payments and qualified retirement plans - to mention just a few.
Please keep in mind this is not a complete list of changes for tax year 2012 - and there likely will be further changes as the year progresses. Due to current economic conditions - and the fact that this is an election year - it is more important than ever to keep in contact with your CPA. Income tax planning is only one of the many ways to increase your wealth potential!