Tax Updates for 2011 and/or 2012

Maureen D. Barry, CPA

To understand the changes to the 2011 and/or 2012 tax code, one must review the changes that occurred in December 2010 with the passing of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, “2010 Tax Relief Act,” which extended more than 400 benefits that were created in the Bush-era under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) or the Jobs and Growth Tax Relief Act of 2003 (JGTRA). Most of the benefits were extended two years, but there are some that will expire at the end of 2011.

Scheduled to expire at the end of December 31, 2011

• 100% bonus depreciation switches to 50% for 2012 and expires totally for 2013. Bonus depreciation only applies to new assets.
• Code Sec. 179 expensing of up to $500,000 with capital addition limitation of $2,000,000. This will revert back to $125,000/$500,000
• Small Gain Business Stock Exclusion
• Highest exemption amounts for taxpayers subject to AMT.
• Tuition and fees deduction.
• Classroom expense deductions.
• Charitable contributions from the Required Minimum Distribution (RMD) of an IRA.
• Deduction of state and local sales taxes in place of state and local income taxes.
• Payroll Tax:
• The 2010 Tax Relief Act created a tax cut for more than 155 million workers by reducing the employee share of the Social Security tax from 6.2% to 4.2% for wages up to $106,800. As of today, the house and senate have not passed any extension of this payroll tax cut.

Scheduled to expireat the end of December 31, 2012

• Reversion of individual income tax rates to    2001 levels:
  • Income tax rate pre 2001 – 15% to 39.6%,
  • Current income tax rates – 10% to 35%
• Favorable tax rate on capital gains income – currently 0% and 15% and without an extension will be 10% and 20% for 2013.
• Dividend income rates – 15% currently back to ordinary income rates for 2013.

1099 Reporting
Part of the Patient Protection and Affordable Care Act was going to require businesses to report payments to corporations in excess of $600 on Form 1099-MISC. This has been repealed with Secton 9006 of the Act.

Education Credits

• American Opportunity Tax Credit (“AOTC”) – extended thru December 31, 2012:

This is an enhancement on the Hope Credit and is for tax years beginning after December 31, 2008 and before January 1, 2013. The AOTC has increased income limitations of $80,000 single and $160,000 for joint. AOTC completely phases out for single individuals with modified AGI of $90,000 and $180,000 for married couples filing jointly.

The credit can be as much as $2,500 with up to 40% of it being a refundable credit if the taxpayer’s tax liability is insufficient to offset the nonrefundable credit amount.

• Student Loan Interest Deduction – extended thru December 31, 2012:

After 2012 student loan interest will be deductible only if paid during the first 60 months, whether or not consecutive, that interest payments are required.

Newsletter Summary Page »

To ensure compliance with requirements imposed by the IRS, please note, any advice contained in this publication was not intended, or written, to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. This publication is distributed with the understanding that the publisher and distributor are not providing legal, accounting or other professional advice and assume no liability whatsoever in conjunction with the information contained within this publication.