CPA Sacramento – Income Tax Changes Coming for 2012
Published: April 20, 2012The 2011 Federal filing date has been shortly extended to April 17th 2012. The State filing due date will still remain April 16th 2012. However, a congressional review in the coming months is pending to assess the tax code for next year. The Federal Government continues to provide implemented income tax changes that affect much of the taxable income in the United States.
Expected updates to be determined in the upcoming review of the tax code include changes in the following areas:
* Earned Income Credit
* Deduction Rates for Mileage
* Social Security
* Medicare
* Exemptions and Deductions of Standard Federal Income Tax
* Learning Tax Credits
* Roth Plans
* IRA Tax Information
* 401 Plans
Federal changes are expected to take effect for income tax filings for 2012.
Medicare and Social Security
Medicare taxes will remain at 1.45 % of the taxable income of Americans. Social Security reverts back to 6.20 % after an extension of the temporary 2 % reduction in the percentage. The Social Security wage limit will increase for the first time in over three years. The cost of living adjustment is approximately 3 %, which increases the Social Security limit to over $2500. per year.
2012 Standard Deductions
Accountants in Sacramento have reported that 2/3 of the population will claim the standard deductions when filing their 2012 tax returns. A CPA in Sacramento reported an increase in the amounts of standard deductions a taxpayer can claim when filing income tax returns. Standard deduction increases for individual taxpayers are as follows:
* Single Filer standard deductions increase by about $150, raising the total to $5950.
* Married Filing Separately deductions increase by about $150, raising the total for this group to $5950.
* Head of Household increases by approximately $200, raising that total of this deduction to $8700.
* Married Filing Jointly increases by approximately $30, raising this standard deduction to about $11900.
The total amount of exemption deductions has also increased. Taxpayers are now given a $100 increase on exemption deduction limits. Taxpayers will be allowed to claim $3800 for each exemption.
Mileage Rate Deductions
The Internal Revenue Service performed a demonstration to prove that driving a vehicle is not economically efficient in today’s world. The changed that have been implemented for the 2012 tax changes include:
* Business Mileage deductions increased to 5.5 cents per mile
* Charitable Facilities Mileage deductions increased to 14 cents per mile
* Medical travel receives a limit of 23 cents per mile.
Earned Income Credit
Earned income credits are determined by the number of people in a family or household. The requirements to qualify for earned income credit are as follows:
* With no children, taxable income must be less than $13,900. If a taxpayer is married filing jointly with no children, they qualify for $19,190.
* With one child, taxable income must be less than $3692. Earnings must be less then $42,130. for married couples filing jointly.
* If taxpayers have two children, their earnings must be less then $41,952. If married filing jointly the amount is $47,162.
* Taxpayers that have three or more children have a taxable income limit of $45,060. If married filing jointly the amount is $50,270.
Tax credits for dependents increase in 2012, as well. The increases are:
* No children- $475
* One child- $3169
* Two Children- $5236
* Three Children or More- $5891
Hope Credit
CPA Sacramento says maximum Hope Credits allowed in 2012 will remain $2500. This amount includes the first two years of college education. This amount also includes 100 % of tax deductible tuition and any other expenses associated with education not to exceed $2000 of the allowable tuition deduction. Total education expenses may not exceed $4000.
Lifetime Learning Credit
A Lifetime Learning credit is designed for taxpayers that have out of pocket expenses of at least $10,000 for continuing education. These taxpayers will be able to deduct 25 % of the first $10,000. Taxpayers will not be able to use the Lifetime Credit and the Hope Credit in the same filing year. Credit reductions begin for individuals that make $80,000, or $160,000 for joint returns.
IRA
Limits for Contributions to 401 Plans will increase $500 for 2012. The new limit is now $17,000. Retirement plans remain at $11,500.