Now that we have rounded the halfway point of 2012, this would present a good opportunity to begin preparing for some much anticipated change. Attention is being paid to the expiring “Bush tax cuts”, which will expire at the end of 2012 unless additional legislation is passed. In fact, several important federal income tax provisions already expired at the end of 2011. Here is a quick rundown on where things stand today:
A series of temporary legislative patches over the last several years has prevented a dramatic increase in the number of individuals subject to the alternative minimum tax (AMT) – The last such patch expired at the end of 2011. Unless new legislation is passed, your odds of being caught in the AMT net greatly increase in 2012. Here are some other provisions that have already expired:
- Bonus depreciation and IRC Section 179 expense limits – This one is big for business owners. Business owners were allowed a first-year depreciation deduction of 100% of the cost of qualifying property acquired and placed in service during 2011; this “bonus depreciation” drops to 50% for 2012 and disappears altogether in 2013.
- State and local sales tax – 2011 was the last tax year for which you could elect to deduct state and local general sales tax in lieu of state and local income tax.
- Education deductions – The maximum deduction of $4,000.00 for qualified higher education expenses and the $250.00 of out-of-pocket classroom expenses paid by education professionals both expired at the end of 2011
Here are some additional changes expected by the end of the year:
- After December 31, 2012, we’re scheduled to go from six federal tax brackets to five
- Rates that apply to long-term capital gains and dividends will change to 20% and 10% from 15% and 0% respectively.
- 2% payroll tax reduction in the Social Security portion of the FICA payroll tax is set to expire
- Beginning in 2013, itemized deductions and personal and dependency exemptions will be phased out for individuals with high AGIs.
- The earned income tax credit, the child tax credit, and the HOPE tax credit revert back to the older, less generous rules of application.
- The ability to deduct interest on student loans after the first 60 months of repayment
- The applicable exclusion amount of $5,120,000.00 as well as the portability for married couples is set to expire, which leaves this as an unknown for 2013.
There is a lot of change taking place; hopefully the change is for the better. What are your thoughts?