In 2012, Many Tax Benefits Increase Due to Inflation Adjustments
WASHINGTON — For tax year 2012, personal exemptions and standard deductions will rise and tax brackets will widen due to inflation, the Internal Revenue Service announced today.
By law, the dollar amounts for a variety of tax provisions, affecting virtually every taxpayer, must be revised each year to keep pace with inflation. New dollar amounts affecting 2012 returns, filed by most taxpayers in early 2013, include the following:
• The value of each personal and dependent exemption, available to most taxpayers, is $3,800, up $100 from 2011.
• The new standard deduction is $11,900 for married couples filing a joint return, up $300, $5,950 for singles and married individuals filing separately, up $150, and $8,700 for heads of household, up $200. Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.
• Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $70,700, up from $69,000 in 2011.
Credits, deductions, and related phase outs.
• 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.
• The foreign earned income deduction rises to $95,100, an increase of $2,200 from the maximum deduction for tax year 2011.
• 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.
• For 2012, annual deductible amounts for Medical Savings Accounts (MSAs) increased from the tax year 2011 amounts; please see the table below.
Medical Savings Accounts (MSAs) Self-only coverage Family coverage
Minimum annual deductible $2,100 $4,200
Maximum annual deductible $3,150 $6,300
Maximum annual out-of-pocket expenses $4,200 $7,650
The $2,500 maximum deduction for interest paid on student loans begins to phase out for a married taxpayers filing a 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.
Estate and Gift
For an estate of any decedent dying during calendar year 2012, the basic exclusion from estate tax amount is $5,120,000, up from $5,000,000 for calendar year 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 annual exclusion for gifts remains at $13,000.
If you would like more information on any of the above topics, please contact me.
Expanded 1099 Reporting Requirements Repealed
by Alistair M. Nevius, J.D.
Published June 01, 2011
Journal of Accountancy – Tax Advisor
Legislation
On April 14, President Barack Obama signed into law the Comprehensive 1099 TaxpayerProtection and Repayment of Exchange Subsidy Overpayments Act of 2011, P.L. 112-9 (1099Act), which repeals both the expanded Form 1099 information reporting requirements mandatedby last year’s health care legislation and also the 1099 reporting requirements imposed ontaxpayers who receive rental income enacted as part of last year’s Small Business Jobs Act,P.L. 111-240. The Senate approved the bill on April 5, and the House had voted in favor of it onMarch 3.
In March 2010, the Patient Protection and Affordable Care Act, P.L. 111-148 (part of the healthcare reform legislation), expanded the 1099 reporting requirements to include all paymentsfrom businesses aggregating $600 or more in a calendar year to a single payee, includingcorporations (other than a payee that is a tax-exempt corporation), and to include paymentsmade for property, starting with payments in 2012. The 1099 Act repeals the expansion topayees that include corporations by removing Sec. 6041(i). It repeals the expansion to coverpayments for property by removing the language “amounts in consideration for property”and “gross proceeds” from Sec. 6041(a). The act also removes Sec. 6041(j), which grantedTreasury authority to issue regulations under Sec. 6041, including “rules to prevent duplicativereporting of transactions.” These changes are effective for payments made after December 31,2011 (when the new rules were to take effect), and they revert those portions of Sec. 6041 tohow they were before the Patient Protection and Affordable Care Act.
The Small Business Jobs Act enacted a requirement that individuals who receive rentalincome must issue Forms 1099 to service providers for payments of $600 or more. It did thisby specifying that “a person receiving rental income from real estate shall be considered tobe engaged in a trade or business of renting property.” The 1099 Act strikes Sec. 6041(h) inits entirety, effective for payments made after December 31, 2010 (the original effective dateof Sec. 6041(h)), placing individuals who receive rental income in the same position as if theexpanded information reporting requirements had never been enacted.
As a result of the act, the 1099 reporting rules continue unchanged: Under Sec. 6041(a), “Allpersons engaged in a trade or business and making payment in the course of such trade orbusiness to another person” of $600 or more must report the amount and the name and addressof the recipient to the IRS and to the recipient. The Code applies this requirement to paymentsof “rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments,or other fixed or determinable gains, profits, and income,” and the Treasury regulationsadd “commissions, fees, and other forms of compensation for services rendered aggregating$600 or more” as well as interest (including original issue discount), royalties, and pensions(Regs. Sec. 1.6041-(a)(1)(i)).
This required information must be reported each calendar year for payments made during thatcalendar year.
The AICPA had advocated strongly for repeal of both provisions, and as one of the onlyorganizations advocating against the rental property requirement was a driving force in itsrepeal. When the Senate passed the bill on April 5 and sent it to President Obama for hissignature, AICPA President Barry Melancon described the repeal as “a victory for taxpayers.”
Tax Season Delay for Certain Filers
The IRS has announced a delay in the start of tax season for some individual taxpayers affected by the Tax Relief Act of 2010. This delay affects individual taxpayers who itemize deductions, claim tuition and fees deduction, or claim the educator expense deduction. The delay affects both paper-filed and e-file returns. (For a complete list of forms, see Forms Affected By the Extender Provisions below.)
The IRS is asking preparers to wait for the IRS prescribed start date – mid-to late February 2011 – before e-filing these returns; returns submitted on paper prior to the IRS prescribed start date will be ‘shelved’ and processed later than returns filed on or after the start date. IRS e-file is the fastest, best way for taxpayers affected by the delay to get their refunds.
Forms Affected By the Extender Provisions
Taxpayers must wait to file if they are affected by any of the tax credits or deductions that expired at the end of 2009 and were renewed by the 2010 Tax Relief Act, enacted December 17, 2010.
The delays affect taxpayers claiming:
•Itemized deductions (claimed on Schedule A of Form 1040)
•Tuition and Fees Deduction (claimed on Form 8917)
•Educator Expense Deduction (claimed on Form 1040, line 23, or Form 1040A, line 16)
•Casualties and thefts (claimed on Form 4684)
•District of Columbia First-Time Homebuyer Credit (claimed on Form 8859)
•A few other taxpayers must wait to file, due to recent changes included in the Small Business Jobs Act of 2010.
Affected forms include:
•Form 3800, General Business Credit
•Form 5405, First-Time Homebuyer Credit and Repayment of the Credit
•Form 6478, Alcohol and Cellulosic Biofuel Fuels Credit
•Form 8834, Qualified Plug-In Electric and Electric Vehicle Credit
•Form 8910, Alternative Motor Vehicle Credit
•Form 8936, Qualified Plug-In Electric Drive Motor Vehicle Credit