Wolf, Rogers, Dickey & Co.
38 South Franklin St. Delaware, OH 43015
ph: 740-362-9031
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WRD&Co.
is a full-service
accounting firm serving clients
throughout the Central Ohio area,dedicated to providing our
clients with
professional,
personalized
services and
guidance in a
wide range of
financial and
business needs.
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While we all are focused on preparing and filing 2011 tax returns, now is a good time to start thinking about 2012.
Since only a few new federal tax laws were enacted during 2011, one could incorrectly conclude that there are only minor tax changes in store for 2012. This is not the case because a number of substantial changes result from expiring provisions of previous laws.
This letter serves as an outline of the major tax law changes you should be aware of to minimize taxes.
Please note that some of the changes below could be altered again by Congress this year.
New for 2012
* 2-Month Extension of Payroll Tax Break: Temporary extension of the 4.2% Social Security payroll tax rate for individuals originally enacted in 2011 and a new "recapture" provision, which applies only to those employees who receive more than $18,350 in wages during the two-month period.
Expired in 2011
* A Nonbusiness energy property credit: 10% credit (up to $500, less if any credit was taken in a previous year) is available if you make certain energy efficient improvements to your home. Such improvements include high-efficiency heating and air conditioning systems, water heaters, windows (limited to $200), skylights, doors, insulation and roofs. The improvements must be made to an existing principal residence. A manufacturer's certificate must accompany the qualifying property.
* Increased AMT exemption amounts: For 2011, the AMT exemption amounts were $74,450 for married filing jointly, $37,225 for married filing separately, and $48,450 for singles and heads of household. For 2012, the exemption amounts are significantly lower (unless Congress acts to adjust): $45,000 for married filing jointly, $22,500 for married filing separately, and $33,750 for singles and heads of households.
* Nonrefundable personal credits offsetting AMT: Only through 2011 could nonrefundable personal credits offset a taxpayer's alternative minimum tax. However, this rule does not apply to the adoption credit, the child tax credit, the saver's credit, the residential energy efficient property credit, and the American Opportunity credit, among others.
* Deduction for state sales taxes: The election to deduct as an itemized deduction state and local sales taxes instead of state and local income taxes.
* Educator expense deduction: The $250 above the line deduction for qualifying educators for expenses paid for books and supplies used in the classroom.
* Tuition expenses: The above-the-line deduction for qualified tuition and related expenses.
* Charitable contributions from IRA accounts: The ability to distribute up to $100,000 tax free to charity from an IRA maintained for an individual who has reached age 701/2.
* Research credit: The tax credit for research and experimentation expenses.
Increased first-year asset expensing: For 2011, the amount eligible for asset expensing is $500,000. Beginning in 2012, the amount is reduced to $139,000.
* 100% bonus depreciation: The additional first-year depreciation for 100% of basis of qualified property which is available in 2011, is reduced to 50% bonus depreciation in 2012.
*Expiring in 2012
* Phaseouts of itemized deductions and personal exemptions: The overall limitation on itemized deductions for taxpayers with AGIs above a threshold amount does not apply in 2012. The phaseout for personal exemptions for higher income taxpayers also does not apply in 2012.
* Education credit: The American Opportunity Credit replaced the Hope Education Credit for 2009 through 2012 only. The benefits of the new credit are: (1) required course materials, such as books qualify; (2) the credit is increased up to $2,500; (3) income level phaseouts are higher; (4) forty percent of the credit is refundable.
* Lower capital gains rates: The 15% capital gains rate (0% for taxpayers below the 15% tax bracket) is scheduled to increase to 20% in 2013. Qualifying dividends taxed at reduced capital gain rates will be taxed at ordinary income rates beginning in 2013.
* Increased first-year asset expensing: For 2012, the amount eligible for asset expensing is $139,000 (as indexed for inflation). Beginning in 2013, the amount is reduced to $25,000.
* Refundable portion of child tax credit: The earned income formula for the determination of the refundable child credit applies to 15% of the taxpayer's earned income in excess of $3,000. This allows more earned income to qualify in order to determine how much of the credit is refundable. Beginning in 2013, the amount will be considerably higher.
* Lower income tax rates: Legislation in 2001, reduced the tax rates on ordinary income through 2010. Legislation in 2010 extended the lower rates through 2012. The current rates of 10%, 15%, 25%, 28%, 33%, and 35% could all change beginning in 2013.
* Higher earned income tax credit: The temporary increase in the EITC percentage from 40% to 45% for families with three or more qualifying children ends in 2012. Additionally, the marriage penalty relief, through an increased threshold phaseout amount for married couples filing joint returns, also expires.
* Child tax credit dollar amount: The $1,000 per qualifying child credit amount is set to be reduced to $500 beginning in 2013.
* 50% bonus depreciation: The additional first-year depreciation for 50% of basis of qualified property.
* Estate tax: Increase in estate and gift tax exemption to $5,120,000 (as indexed for inflation).
While there are other minor changes that have taken place from 2011 to 2012, the above list represents tax changes that most likely will impact your 2012 taxes. You also should be aware that Congress is in the middle of deliberations that could lead to the extension of some of the above-mentioned expired or expiring tax provisions. If that happens, we will notify you of those changes.
Please do not hesitate to contact us if you have any concerns about how any of the tax law changes would affect you.
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If you have any questions, please do not hesitate to call.
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