The following are select tax topics affecting individuals and businesses for tax year 2012.
Personal Exemptions: The personal exemption is $3,800 for 2012, an increase of $100.
Alternative Minimum Tax (AMT): Exemption increased to $50,600 (from $48,450) for single taxpayers, $78,750 (from $74,450) for joint filers and $39,375 (from $37,225) if married and filing separately. These increases are now permanent and will be indexed for inflation for tax years beginning after 2012. Also, for tax years beginning after 2012, certain non-refundable personal credits are permitted to offset the entire regular and AMT tax liability.
Refundable Child Credit: For 2012, any unused credit is refundable in an amount equal to the lessor of the unclaimed portion of the non-refundable credit, or 15 percent of the taxpayer's earned income in excess of $3,000. Special rules apply for taxpayers with three or more children.
Standard Mileage Rates: The standard mileage rate is 55.5 cents per mile for business use of car, 23 cents per mile for medical and moving purposes and 14 cents per mile for charitable purposes.
Roth IRA Conversions: Regardless of income, individuals may convert funds from retirement accounts, such as 401(k) or IRA accounts, to Roth IRAs. If such a conversion was made in 2010, and the election was made to defer the tax on the taxable amount, the remaining tax is due in 2012. Tax deferrals for Roth IRA conversions are no longer permitted.
IRA Contribution AGI Limits Increased: If you were covered by a retirement plan through your employer in 2012, your deduction for contributions to traditional IRAs is phased out starting at $58,000 of AGI for single taxpayers and $92,000 of AGI for joint filers.
American Opportunity Tax Education Credit Continues: Up to $2,500 credit per student for qualified higher-education expenses, such as tuition and cost of books. Phase-out begins at AGI of $80,000 for single filers and $160,000 for joint filers.
Retirement Savings Plans Continue: IRA deductions may be available for those covered by other plans subject to certain dollar limits and phased out for single and joint taxpayers with AGI between $58,000 to $68,000 and $92,000 and $112,000, respectively. For joint filers where only one spouse is covered by another plan, the phase-out range is $173,000 to $183,000.
Roth IRA Income Limits: Roth contributions may be allowed for those with AGI of less than $125,000 for single taxpayers and $183,000 for joint filers.
Tax Benefits for Adoption: Maximum adoption credit is $12,650 for 2012 (down from $13,360) for out-of-pocket expenses for the legal adoption of a child. The credit is no longer refundable.
Domestic Production Activities Deduction: The provision is no longer available for production activities in Puerto Rico.
Empowerment Zone Employment Credit: This credit is no longer available for tax years ending after 2011.
Work Opportunity Tax Credit: For employees hired in 2012, the credit is available only for wages paid to qualified veterans. Previously, the credit was available for wages paid to employees in several targeted groups.
Bonus Depreciation: Property placed in service in 2012 will qualify for regular bonus depreciation, in which 50 percent of the cost is deductible in the year it is placed in service and the rest is depreciated using normal rules. The provision allowing 100-percent bonus depreciation that was available for property placed in service after September 8, 2010, and before the end of 2011 has expired.
Section 179: Businesses can expense up to $560,000 under Section 179 (previously $500,000), for tax years beginning in 2012, with phase-out beginning when property placed in service exceeds $2 million. Also, for 2012 only, a Section 179 election can be irrevocably revoked without IRS consent. Off-the-shelf software qualifies for the election through 2012.
Research Credit: This credit is no longer available for tax years ending after 2011.
For Further Information
For details in connection with many of the tax changes described above, please visit our publications page located here or contact any of the practitioners in the Tax Accounting Group.
As required by United States Treasury Regulations, the reader should be aware that this communication is not intended by the sender to be used, and it cannot be used, for the purpose of avoiding penalties under United States federal tax laws.