2012 Tax Changes
what individuals and families need to know about tax changes
From personal deductions to tax credits and educational
expenses, many of the tax changes relating to individuals
remain in effect through 2012 and are the result of tax
provisions that were either modified or extended by the Tax
Relief, Unemployment Insurance Reauthorization and Job
Creation Act of 2010 that became law on December 17, 2010.
The personal and dependent exemption for tax year 2012 is
$3,800, up $100 from 2011.
In 2012 the standard deduction for married couples filing a
joint return is $11,900, up $300 from 2011 and for
singles and married individuals filing separately it's $5,950,
up $150. For heads of household the deduction is
$8,700, up $200 from 2011.
The additional standard deduction for blind people and senior
citizens in 2012 is unchanged from 2011, remaining at
$1,150 for married individuals and $1,450 for singles and
heads of household.
Income Tax Rates
Due to inflation, tax-bracket thresholds will increase for
every filing status. For example, the taxable-income threshold
separating the 15-percent bracket from the 25-percent bracket
is $70,700 for a married couple filing a joint return, up
from $69,000 in 2011.
Estate and Gift Taxes
The recent overhaul of estate and gift taxes means that
there is an exemption of $5.12 million per individual for
estate, gift and generation-skipping taxes, with a top rate of
35%. The annual exclusion for gifts remains at $13,000.
Alternative Minimum Tax (AMT)
AMT exemption amounts for 2012 have reverted to 2000 levels
and will remain significantly lower than in 2011 unless
Congress takes action before year-end: $33,750 for single and
head of household fliers, $45,000 for married people filing
jointly and for qualifying widows or widowers, and $22,500 for
married people filing separately.
Marriage Penalty Relief
For 2012, the basic standard deduction for a married couple
filing jointly is $11,900, up $300 from 2011.
Pease and PEP (Personal Exemption Phaseout)
Pease (limitations on itemized deductions) and PEP (personal
exemption phase-out) limitations do not apply for 2012, but
like many other tax provisions, are set to expire at the end
of the year.
Flexible Spending Accounts (FSA)
FSA (Flexible Spending Arrangements) are limited to $2,500 per
year starting in 2013 and indexed to inflation after that and
applies only to salary reduction contributions under a health
FSA. However, IRS guidance issued this year recognizes
that the term "taxable year" refers to the plan year of the
cafeteria plan, which is typically the period during which
salary reduction elections are made.
Specifically, in the case of a plan providing a grace period
(which may be up to two months and 15 days), unused salary
reduction contributions to the health FSA for plan years
beginning in 2012 or later that are carried over into the
grace period for that plan year will not count against the
$2,500 limit for the subsequent plan year.
Further, the IRS is providing relief for certain salary
reduction contributions exceeding the $2,500 limit that are
due to a reasonable mistake and not willful neglect and that
are corrected by the employer.
Long Term Capital Gains
In 2012, long-term gains for assets held at least one year are
taxed at a flat rate of 15% for taxpayers above the 25% tax
bracket. For taxpayers in lower tax brackets, the long-term
capital gains rate is 0%.
Individuals - Tax Credits
In 2012 a credit of up to $12,650 is available for qualified
adoption expenses for each eligible child. The available
adoption credit begins to phase out 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.
Child and Dependent Care Credit
If you pay someone to take care of your dependent (defined as
being under the age of 13 at the end of the tax year or
incapable of self-care) in order to work or look for work, you
may qualify for a credit of up to $1,050 or 35 percent of
$3,000 of eligible expenses.
For two or more qualifying dependents, you can claim up to 35
percent of $6,000 (or $2,100) of eligible expenses. For higher
income earners the credit percentage is reduced, but not below
20 percent, regardless of the amount of adjusted gross income.
Child Tax Credit
The $1,000 child tax credit has been extended through
2012 as well. A portion of the credit may be refundable, which
means that you can claim the amount you are owed, even if you
have no tax liability for the year. The credit is phased out
for those with higher incomes.
Earned Income Tax Credit (EITC)
For tax year 2012, the maximum earned income tax credit (EITC)
for low and moderate income workers and working families rises
to $5,891, up from $5,751 in 2011. The maximum income limit
for the EITC rises to $50,270 (up from $49,078 in 2011). The
credit varies by family size, filing status and other factors,
with the maximum credit going to joint filers with three or
more qualifying children.
Individuals - Education Expenses
Coverdell Education Savings Account
You can contribute up to $2,000 a year to Coverdell savings
accounts in 2012. These accounts can be used to offset the
cost of elementary and secondary education, as well as
American Opportunity Tax Credit
For 2012, the maximum Hope Scholarship Credit that can be used
to offset certain higher education expenses is $2,500,
although it is phased out beginning at $160,000 adjusted gross
income for joint filers and $80,000 for other filers.
Employer Provided Educational Assistance
Through 2012, you, as an employee, can exclude up to $5,250 of
qualifying post-secondary and graduate education expenses that
are reimbursed by your employer.
Lifetime Learning Credit
A credit of up to $2,000 is available for an unlimited number
of years for certain costs of post-secondary or graduate
courses or courses to acquire or improve your job skills. For
2012, The modified adjusted gross income threshold at which
the lifetime learning credit begins to phase out is $104,000
for joint filers, up from $102,000, and $52,000 for singles
and heads of household, up from $51,000.
Student Loan Interest
For 2012 (same as 2011), the $2,500 maximum student loan
interest deduction for interest paid on student loans is not
limited to interest paid during the first 60 months of
repayment. The deduction begins to phase out for married
taxpayers filing joint returns at $125,000, and phases out
completely at $155,000, an increase of $5,000 from the phase
out limits for tax year 2011. For single taxpayers, the phase
out ranges remain at the 2011 levels.
Individuals - Retirement
For 2012, the elective deferral (contribution) limit for
employees who participate in 401(k), 403(b), most 457 plans,
and the federal government's Thrift Savings Plan is increased
from $16,500 to $17,000. For persons age 50 or older in 2012,
the limit is $22,500 (up from $22,000 in 2011). Contribution
limits for SIMPLE plans remain at $11,500 for persons under
age 50 and $14,000 for persons age 50 or older in 2012. The
maximum compensation used to determine contributions increases
In 2012, the AGI limit for the saver's credit (also known as
the retirement savings contributions credit) for low-and
moderate-income workers is $57,500 for married couples filing
jointly, $43,125 for heads of household, and $28,750 for
married individuals filing separately and for singles.
Please contact us if you need help understanding which
deductions and tax credits you are entitled to. We are always
available to assist you. To talk or ask me questions,
call me, Paul Sullivan, at 240-316-3531.
is Your Retirement Planning Going?
by Kathy Grow, EA/IAR - Sullivan & Co.
You’ve seen the articles everywhere. The old opportunities for
preparing for retirement have seemingly vanished. If you were
age 50 in 1960, you could confidently assert:
- We are in our peak earning years.
- The kids are grown and out of the house.
- We’ve made more than our folks did and it shows.
- The equity in our house will provide a good nest egg.
- I have a company pension plan for my retirement.
- I will receive social security.
- Our cost of living will be lower once we retire.
None of these are true for most people age 50 in 2012. So,
what have you done to prepare?
If you’re an employee, you
should be contributing as much as possible to your 401(k). If
you’re an employer, you should be sure your firm has a 401(k)
and that it is new enough that it allows you to sock away the
max each year.
Is that it? Are you done? Can you sleep easy now? NO
There are other strategies and investments to consider so that
you are prepared. The most obvious is to consider adding a
Roth or Traditional IRA. I have other ideas that won’t fit
all, but may fit you.
Give me a call at (240) 316-3564 so we can discuss your own
situation and see if we can’t come up with at least one idea
that you can act on today.
you are the type of person that likes to learn & do research I
would also suggest you listen to an audio recording of
a recent conference call we did on this subject titled the
Top 13 Mistakes Made By Retirement Plan Investors.
There are more than 13 mistakes but these are the top ones
people tend to make that can EASILY be avoided with a little
time and planning.
Bill Isaacs, CPA our Tax Department Manager was on the call
with some other Sullivan & Company staff and we walked through
these mistakes in detail.
And as always if you have any questions about accounting or
investments and how they effect you or your business, please give me a call at
(240) 316-3564. We
can help guide you in the right direction.
Kathy Grow, EA/IAR
Remember 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