December 31, 2012, will be a very important date in the lives of taxpayers, because that is the date that
many tax-saving provisions are set to expire. Congress has extended many of these provisions on a
year-by-year basis. However, as it stands now, many tax-cutting provisions have already expired or will
expire. Here are a few of the more important ones that could apply to you.
- Employees share of social security taxes. The employees share of FICA taxes will return to 6.2%
after 2012, up from 4.2%.
- Income tax rates. The 10% tax rate bracket will be eliminated, and the top rate will be 39.6%
(up from 35%).
- Long-term capital gains. The maximum tax on most long-term capital gains will increase from the
current level of 15% to 20%. For some low-income taxpayers, the current long-term capital gains
rate can be zero. That provision will also be eliminated. Additionally, qualified dividends will no longer
be taxed at the long-term gains rates (including the zero rate for lower-income taxpayers). Instead,
dividends will be taxed at ordinary income rates as high as 39.6%.
- Child tax credit. The current credit, which is $1,000 for a qualifying child, will be reduced to $500.
- Student loan interest deduction. This deduction will be limited to only the first 60 months that
interest payments are made, and there will be a much lower income limit where this deduction can
be claimed at all.
- Section 179 expensing deductions. The first-year expensing limit and qualifying property limit will
be reduced to $25,000 and $200,000 (down from the 2012 levels of $139,000 and $560,000).
- Itemized deductions. Itemized deductions are currently not reduced by the size of your adjusted
gross income. That provision will expire, and itemized deductions will again be reduced for higher
bracket taxpayers.
- Estate and gift taxes. The estate and gift tax rules will revert to those in effect before 2001. That
means the maximum estate and gift tax rate will increase to 55% (up from 35%), and the maximum
amount of assets to be left to beneficiaries tax-free will be reduced to $1,000,000 (down from the
current level of $5,120,000).
What can you do to manage your tax bill for 2012 and 2013? You should monitor the tax landscape as
Congress returns to Washington. Some of the things that youll want to examine include the following:
- Should you accelerate income into 2012 in order to take advantage of the current tax rates that may
be lower than future rates?
- Should you sell assets that you have held long-term (such as stocks, mutual funds, and property) to
take advantage of the expected lower capital gains tax rates in 2012?
- Should you sell dividend-paying stocks since the tax benefit for holding such stock may be eliminated?
Contact us if you would like to review these and other tax issues before year-end.
The Affordable Care Act of 2010 included a provision requiring employers to report the cost of coverage
under an employer-sponsored group health plan on the employees 2012 W-2.
However, employers issuing fewer than 250 W-2s will not need to include the cost of health care on
W-2s for 2012. For these employers, the 2012 reporting is optional. And such reporting will not apply
for future calendar years until the IRS publishes further guidance.
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