As you prepare your tax
information for the filing of your 2011 taxes, I thought you might find it
helpful to be aware of several significant tax changes for 2012. They include:
Cut for employees extended through February 29, 2012. The rate will be 4.2% rather than the
6.2% for social security up to the 2012 wage base of $110,100
Credit decreases to $12,650 for adoption of an eligible child
Section 179 expensing
deduction decreases to $139,000 with a phase-out threshold of $560,000.
Business driving remains at 55.5 cents per
Medical and moving mileage decreases to 23
cents per mile.
Charitable driving remains at 14 cents per
Tax top rate remains at 35%, and the exemption amount increases to
The Annual Gift Tax Exclusion remains at $13,000.
salary deferral increases to $17,000 ($22,500 for 50 and older).
salary deferral remains at $11,500 ($14,000 for 50 and older).
limit remains at $5,000 ($6,000 for 50 and older).
Tax threshold remains at $1,900 and applies up to age 19 (up to age 24 for
threshold increases to $1,800 for W-2 reporting.
Security taxable wage limit increases to $110,100. Retirees under the full retirement age can
earn up to $14,640 without losing benefits.
Contribution limit increases to $3,100 for individuals and to $6,250 for
families. An additional $1,000 may be
contributed by those 55 or older.
2012 may be a year of significant tax change and we remain
committed to assisting you with your tax obligations and planning effectively
to assist you.
Continue to prepare for your 2011
tax return preparation and we look forward to seeing you very soon.
Tax and jobs bills which were passed in 2010 increased the ability for small business owners to deduct new and used equipment purchases under Internal Revenue Code Section 179. This allows small companies to deduct the full amount of the purchases rather than depreciate the cost over many years. The deduction is for tangible equipment and personal property purchased and used, or placed in service, in 2011. This includes computers, furniture, telephone systems, certain vehicles, software and machinery used for manufacturing. Leased equipment also qualifies. There are limitations on this deduction but the limits are quite generous.
A supplement to IRC 179 allows for “bonus” depreciation for companies that buy more than $500,000 in qualified equipment in 2011. This bonus depreciation allows businesses that have no taxable profits in 2011 to carry a net loss forward to future years. These deductions do have some limitations, such as only new equipment qualifies, however do keep all receipts for purchases, leases and installations to document the purchase and service use during 2011.
For individual taxpayers:
2011 and 2012 leave individual taxpayers with little significant changes in tax law for federal income tax. Strategies remain to insure taxpayers pay the lowest legal amount of tax.
Individual tax brackets remain at 10%, 15%, 25%, 28%, 33% and 35%. Each personal exemption has been increased to $3,700 for 2011.
Medical Deductions: Medical deductions (only prescription drugs and insulin) are deductible; however there is a 7.5% exclusion of your income. Medical includes all medical insurance, including long-term care with age limitations and medical treatment. Medical Mileage rates are 19 cents for January through June and 23.5 cents from July through December, 2011.
Taxes: Real Estate tax, State and Local Taxes and in some cases State Sales Tax continues to be deductible if you itemize your deductions.
Mortgage Interest: Mortgage interest is available on a primary and one secondary residence with limitations on the size of the mortgage. Home equity loan interest is also deductible subject to limitation.
Investment Interest: Investment interest is deductible but is subject to investment income limitations. There is some opportunity for you to reclassify your capital gains to ordinary income to utilize investment interest. This strategy should be thoroughly reviewed before any decision is made to reclassify the income.
Private Mortgage Insurance Premiums: 2011 is the last year PMI will be deductible unless Congress extends this provision.
Charitable Contributions: Documented contributions to 501(c)(3) charities continue to be tax deductible. The operative word is “documented”. Now is the time to make certain your contributions have receipts and are adequately documented. Non-cash contributions to the Goodwill and Salvation Army should be accompanied by a listing of items given, their condition and their fair market value as well as amount originally paid.
Miscellaneous Itemized Deductions: This catch all category includes, tax return preparation fee, safe deposit box rental, IRA fees paid, job hunting expense and employee business expense. Mileage for business in 2011 is split between months – January through June the rate is 51 cents per mile and from July through December the rate is 55.5 cents per mile. All mileage and business expenses should be adequately documented with written documentation of the miles.
Capital Gains and Losses: 2011 and 2012 continue with the 15% rate on capital gains, however if your strategy is to pay no tax on capital gains, your taxable income must be calculated in the 15% or lower tax bracket. This strategy is very precise and requires tax planning to be effective. Losses, exceeding gains, will be deductible but limited to $3,000 on a jointly filed return, $1,500 on a single taxpayer return.
Alternative Minimum Tax: This add-on tax, for taxpayers who have utilized the tax preference items available, continues to be a part of our system of taxation. The threshold amounts have been increased for 2011, however the rate remains at 28%.
Making Work Pay Credit: The last two years have given married taxpayers up to an $800 credit and single taxpayers up to a $400 tax credit. There is no credit for 2011 on your tax return. Taxpayers received this credit during the year with a reduction of their FICA tax with their wages.
All income is taxable income unless exempted by statute or codes…..a way of saying donot expose you to undo scrutiny by the Internal Revenue Service. The IRS is using technology to match third party documents to your tax filings. There are increased IRS examinations which have been fueled by computer cross-matching between what is being reported on business and personal tax returns and on returns from other entities.
As your Tax Professional, I assure you I have diligently remained current on my tax law education, exceeding the required hours, in order to provide you the most knowledgeable and skilled tax return preparation. You deserve to have a Tax Professional “on your side” and I am honored that you have chosen me and our firm to assist you in meeting your federal tax filing requirements.
If any of these issues are a concern or prompt you to action, please do not hesitate to contact me. We are here for you!