for 2012: A Checklist
2012! As the new year rolls around, it's always a sure bet
that there will be changes to the current tax law and 2012 is
no different. From health savings accounts to retirement
contributions here's a checklist of tax changes to help you
plan the year ahead.
The current tax rate structure ranging from 10% to 35% remains
the same for 2012, but tax-bracket thresholds increase for
each filing status. Standard deductions and the personal
exemption have also been adjusted upward to reflect inflation.
For details see Tax Brackets and Exemptions for 2012 below.
Alternate Minimum Tax (AMT)
Alternate Minimum Tax (AMT) limits decrease for all taxpayers
at $33,750 for singles, $45,000 for married filing jointly,
and $22,500 for married filing separately.
For taxable years beginning in 2012, the amount that can be
used to reduce the net unearned income reported on the child's
return that is subject to the "kiddie tax," is $950. The same
$950 amount is used to determine whether a parent may elect to
include a child's gross income in the parent's gross income
and to calculate the "kiddie tax". For example, one of the
requirements for the parental election is that a child's gross
income for 2012 must be more than $950 but less than $9,500.
For 2012, the net unearned income for a child under the age of
19 (or a full-time student under the age of 24) that is not
subject to "kiddie tax" is $1,900, the same as 2011.
Health Savings Accounts (HSAs)
Contributions to a Health Savings Account (HSA) are used to
pay current or future medical expenses of the account owner,
his or her spouse, and any qualified dependent. Medical
expenses must not be reimbursable by insurance or other
sources and do not qualify for the medical expense deduction
on a federal income tax return.
A qualified individual must be covered by a High Deductible
Health Plan (HDHP) and not be covered by other health
insurance with the exception of insurance for accidents,
disability, dental care, vision care, or long-term care.
For calendar year 2012, a qualifying HDHP must have a
deductible of at least $1,200 for self-only coverage or $2,400
for family coverage (unchanged from 2011) and must limit
annual out-of-pocket expenses of the beneficiary to $6,050 for
self-only coverage (up $100 from 2011) and $12,100 for family
coverage (up $200 from 2011).
Medical Savings Accounts (MSAs)
There are two types of Medical Savings Accounts (MSAs), the
Archer MSA created to help self-employed individuals and
employees of certain small employers and the Medicare
Advantage MSA, which is actually an Archer MSA as well, and is
designated by Medicare to be used solely to pay the qualified
medical expenses of the account holder. To be eligible for a
Medicare Advantage MSA, you must be enrolled in Medicare and
both MSAs require that you are enrolled in a high deductible
health plan (HDHP).
Self-only coverage. For taxable years beginning in
2012, the term "high deductible health plan" means, for
self-only coverage, a health plan that has an annual
deductible that is not less than $2,100 (up $100 from 2011)
and not more than $3,150 (up $150 from 2011), and under which
the annual out-of-pocket expenses required to be paid (other
than for premiums) for covered benefits do not exceed $4,200
(up $150 from 2011).
Family coverage. For taxable years beginning in 2012,
the term "high deductible health plan" means, for family
coverage, a health plan that has an annual deductible that is
not less than $4,200 (up $150 from 2011) and not more than
$6,300 (up $250 from 2011), and under which the annual
out-of-pocket expenses required to be paid (other than for
premiums) for covered benefits do not exceed $7,650 (up $250
Eligible Long-Term Care Premiums
Premiums for long-term care are treated the same as health
care premiums and are deductible on your taxes subject to
certain limitations. For individuals age 40 or less at the end
of 2012, the limitation is $350. Persons over 40 but less than
50 can deduct $660. Those over age 50 but not more than 60 can
deduct $1,310, while individuals over age 60 but younger than
70 can deduct $3,500. The maximum deduction $4,370 and applies
to anyone over the age of 70.
Adoption Assistance Programs
For taxable years beginning in 2012, the amount that can be
excluded from an employee's gross income for the adoption of a
child with special needs is $12,650. In addition, the maximum
amount that can be excluded from an employee's gross income
for the amounts paid or expenses incurred by an employer for
qualified adoption expenses furnished pursuant to an adoption
assistance program for other adoptions by the employee is
$12,650 (down from $13,360 in 2011).
The amount excludable from an employee's gross income begins
to phase out under for taxpayers with modified adjusted gross
income (MAGI) in excess of $189,710 and is completely phased
out for taxpayers with modified adjusted gross income of
$229,710 or more.
Taxpayers adopting children are eligible for both the adoption
credit (see below) and the adoption assistance exclusion of
adoption expenses paid for through an employer's adoption
assistance plan. However, the same adoption expense cannot
qualify for both the adoption credit and the adoption
Foreign Earned Income Exclusion
For taxable years beginning in 2012, the foreign earned income
exclusion amount is $95,100, up from $92,900 in 2011.
For an estate of any decedent dying during calendar year 2012,
the basic exclusion amount is $5,120,000, up from $5,000,000
in 2011. Also, if the executor chooses to use the special use
valuation method for qualified real property, the aggregate
decrease in the value of the property resulting from the
choice cannot exceed $1,040,000, up from $1,020,000 for 2011.
The maximum tax rate remains at 35%.
Note that this is only a PARTIAL LIST and you can
click here to read the rest of the article.
Please contact us if you need help understanding which
deductions and tax credits you are entitled to. We are always
available to assist you.
As always you can call our offices if you have any
questions about these or any other accounting, tax,
financial planning or insurance related issues, at 301-657-8080.
Regards, Paul Sullivan, CPA
President, Sullivan & Company