Wednesday, January 18, 2012

2012-The tax breaks that are possibly going away, unless congress acts!

You’ll face a higher tax bill next spring if Congress and the President can't agree to revive a series of tax breaks that expired Dec. 31, 2011. Among the breaks that Congress didn’t extend in all the payroll tax holiday are the following:

Here are some of the more popular tax breaks possibly going away-

1-Alternative minimum tax patch
The AMT is a tax system created to prevent excessive use of tax breaks by the very wealthy, ensuring they pay at least some tax. Taxpayers whose income exceeds the AMT exemption – in 2011, $48,450 for individuals and $74,450 for married couples filing jointly – must calculate both regular tax and AMT liability and pay the larger of the two amounts. But exemption levels have, at least tentatively, dropped to $33,750 for individuals and $45,000 for married couples filing jointly in 2012, which will expose 31 million taxpayers to the higher AMT this year, according to Tax Policy Center estimates.

2) Higher mass transportation benefit
A 2009 federal stimulus provision raised the maximum an employee could receive for transit, tax-free, from $120 to $230. That matched the tax-free limit for parking. With the expiration of this break, the maximum for 2012 dropped to $125. Employees who’ve asked to have an amount higher than that withheld from their paycheck to cover their total commuting costs will see their net pay come down, as the difference is now taxed.

3) Deduction for direct IRA payouts to charity
Retirees who are 70½ or older could direct up to $100,000 of their IRA distributions directly to charity and exclude the donated amounts from taxable income. Not anymore in 2012, unless Congress reinstates this deduction.

4) Write-offs for state sales taxes
This one hurts if you are in one of the states that uses sales tax instead of a state income tax (that means us Floridians, you Texans, and 5 other states!)
This particularly significant expired break allowed you to deduct either state income tax or state sales tax from your federal taxable income.

5)Teacher’s supplies deduction
My teacher clients are going to yell at me if this is not extended! Come on Congress & the President!
Teachers were able to take an additional deduction of up to $250 for classroom supplies they paid for out of their own pockets.

6) Tuition and fees deduction
Students beware! Taxpayers (up to certain income limits) who can't claim the more advantageous American Opportunity or Lifetime Learning credits can still reduce taxable income by up to $4,000 for tuition and other qualifying educational expenses, if it is extended.

7)Mortgage insurance premium deduction
Although I question the value of this entire program (it has done nothing to prevent the falling house prices of the past few years and subsequent effects on those homeowners). Homeowners who don’t exceed certain income limits had been able to deduct premiums they pay on mortgage insurance policies issued after 2006 on their primary residence.

8) Personal tax credits applied against the alternative minimum tax

Credits such as the tuition and dependent-care credits were allowed to offset your AMT liability.

9) Research and Development credit

Like the AMT patch and direct IRA payouts, this credit, which allowed high-tech companies and others to subsidize research in areas that might go unexplored, has broad support. But it still falls to Congress to reauthorize it periodically.

We think Congress and the President will manage to revive most of these breaks -- eventually.