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Here are some highlights of changes in effect for 2012:
Personal exemption amount. This amount is $3,800 per person for 2012. Remember, the phase-out for "high-income taxpayers" has been eliminated.
Standard deductions. Standard deduction amounts have increased for 2012 as follows: singles and married filing separately, $5,950; heads of household, $8,700; married filing jointly, $11,900.
Alternative Minimum Tax (AMT). The AMT exclusion amount for single taxpayers is $48,450. For those who are married and file jointly, the AMT exclusion amount is $74,450; for those who are married and file separately the amount is $37,225. The following personal credits can be claimed against AMT in 2012: child and dependent care credit, elderly or disabled credit, lifetime learning credit, mortgage interest credit, and the nonbusiness energy property credit.
Residential energy credit. This credit is available for a variety of energy-saving home improvements like insulation and thermal windows. The credit is limited to a maximum of $500, reduced by all amounts claimed in 2006-2010.
Residential energy-efficient property credit. The credit is 30 percent of the cost of qualifying energy equipment, but the maximum limitation on the credit under previous law has been removed, except for fuel-cell property.
Adoption tax credit. In 2012, the maximum credit allowed for an adoption of a special needs child or other adoption is $13,360. The credit begins to phase out for taxpayers with modified adjusted gross income over $185,210 and is completely phased out at $225,210.
AMT exemption amount increased. For 2012, the AMT exemption amounts are $74,450 for married couples filing jointly and surviving spouses, $48,450 for single taxpayers and heads of household, and $37,225 for married couples filing separately. Taxpayers may take nonrefundable personal credits (child and dependent care, elderly or disabled, mortgage interest, and nonbusiness energy property credits) to reduce their AMT liability.
Research tax credit. The research tax credit was retroactively reinstated for tax years beginning in 2010, and continued for tax years beginning in 2012.
Tax on child's investment income. Under the "kiddie tax" rules, the amount of taxable investment income a child under age 19 can have without it being subject to federal income tax at the parent's rate is $1,900 for 2012. Also, the rules cover children up through age 23 if they are students who don't provide one-half of their own support.
Standard mileage rate. From January 1, 2010, to June 30, 2012, the standard mileage rate for business use of a car was 51 cents per mile. The rate for charitable use of a car was 14 cents a mile, and the rate for medical travel or moving was 19 cents a mile. From July 1, 2012, through December 31, 2012, the standard mileage rate for business use of a car was 55.5 cents per mile. For moving and medical use of car, the rate was 23.5 cents per mile. The rate for charitable driving remained at 14 cents per mile.
$500,000 Section 179 first-year expense deduction. The limit for the section 179 deduction is $500,000 for 2012. The investment limitation is $2 million.
Special bonus depreciation. For property placed in service on or after September 9, 2010 through 2012, the bonus depreciation rate is 100 percent.
Retirement plan elective deferral limits. An employee's maximum salary deferral to a 401(k) plan, a tax-sheltered 403(b) annuity, a salary reduction simplified employee pension (SEP) plan, or a government-sponsored 457 plan is $16,500 in 2012. Those 50 years or older can make additional catch-up contributions to their plans of $5,500 in 2012.
Elective deferrals to a SIMPLE plan remain $11,500 in 2012. SIMPLE plan participants who are age 50 and over can make additional catch-up contributions of $2,500 in 2012.
IRA deduction phase-out level. In 2012, you may still be able to take a deduction for IRA contributions if you were covered by a retirement plan and your modified adjusted gross income is less than $66,000 ($110,000 if married filing jointly). If only your spouse was covered by a retirement plan, then you may be able to take the deduction if your income is less than $179,000.
Roth IRAs. You can choose make a qualified rollover contribution regardless of income beginning in 2012 (the previous $100,000 income limitation is removed).
State and local sales tax deduction. This deduction is available through 2012.
Higher education tuition deduction. This deduction is available through 2012.
Teacher's classroom expense deduction. This deduction is available through 2012.
Charitable contribution of IRA proceeds and of appreciated property for conservation purposes. These deductions are available through 2012.
Payroll tax cut. The employee's share of the Social Security payroll tax is reduced from 6.2 percent to 4.2 percent for wages earned in 2012, up to the wage cap of $106,800. For 2012, self-employed persons must pay self-employment tax of 10.4 percent (representing the employee's portion at 4.2 percent and the employer's portion at 6.2 percent). The Medicare (HI) portion remains at 1.45 percent for both the employer and employee portion (2.9 percent for self-employment tax purposes).
Changes Beyond 2012
Additional tax law changes will occur in 2012, although many significant provisions are locked in place through 2012. The following are some of the highlights you can look forward to in the coming year:
Personal exemption amount. This amount is $3,800 per person in 2012.
Standard deductions. Standard deduction amounts for 2012 will increase. The amounts for singles or married filing separately will be $5,950, for married filing jointly $11,900, and for heads of households $8,700.
Standard mileage rate. The standard mileage rate for determining your deduction for the business use of a car is 55.5 cents per mile in 2012. Those using their car for charitable purposes in 2012 can deduct 14 cents per mile. Cars used for deductible medical travel or moving can deduct 23 cents per mile in 2012.
Section 179 first-year expensing election. For tax years beginning in 2012, the expensing limit is $139,000 and the investment limitation is $560,000.
Adoption tax credit. In 2012, the maximum credit allowed for an adoption of a special needs child or other adoption is $12,650. The credit begins to phase out for taxpayers with modified adjusted gross income over $189,710 and is completely phased out at $229,710.
Child Tax Credit. The child tax credit continues to be available for 2012. The maximum amount is $3,000, although this amount is reduced for taxpayers with higher incomes.
Adoption Credit and Exclusion. The $12,650 adoption credit and income exclusion for employer-provided adoption benefits is extended through 2012.
Dependent Care Credit. The dependent care credit has been extended at 2010 levels through the end of 2012.
American Opportunity Tax Credit. The AOTC has been extended through 2012. The maximum credit is $2,500 and the phaseout for higher income individuals is retained.
Educational Assistance Exclusion. Employees may exclude from income, and employers may deduct, up to $5,250 of qualified education experiences in 2012.
Student Loan Interest Deduction. The $2,500 above-the-line interest deduction is available in 2012. The phaseout begins at $60,000 ($125,000 for joint filers).
Coverdell Education Savings Accounts. The maximum contribution to a Coverdell ESA, which can be used for elementary and secondary school expenses, as well as post-secondary education, continues to be $2,000 through 2012.
Retirement plan elective deferral limits. An employee's maximum salary deferral to a 401(k) plan, a tax-sheltered 403(b) annuity, a salary reduction simplified employee pension (SEP) plan, or a government-sponsored 457 plan increases to $17,000 for 2012. Those 50 years or older can make additional catch-up contributions to their plans in $5,500 in 2012.
Elective deferrals to a SIMPLE plan remain at $11,500 in 2012. SIMPLE plan participants who are age 50 and over can make additional catch-up contributions of $2,500 in 2012.
IRA deduction phaseout level. In 2012, you may still be able to take a deduction for IRA contributions if you were covered by a retirement plan and your modified adjusted gross income is less than $68,000 ($112,000, if married filing jointly.) If only your spouse was covered by a retirement plan, then you may be able to take the deduction if your income is less than $183,000.
Estate Tax. For estates of decedents dying in 2012, the maximum estate tax rate is 35 percent, with an exclusion amount of $5 million ($10 million for married couples.) The stepped-up basis rules have been reinstated.