Several tax changes are in store for 2012. Many popular deductions and favorable tax benefits are expiring at the end of 2011 and won't be available for 2012. If any of these deductions are an important part of your tax strategy, you may want to arrange your finances to take advantage of these tax breaks in 2011 before they expire.
Source: Joint Committee on Taxation, report JCX-2-11.
The one-year-only reduction in the Social Security tax expires at the end of 2011. In 2012, the Social Security tax will revert to its regular rate of 12.4%, with half (6.2%) paid by employers and the other half (6.2%) paid by employees. Self-employed persons pay the full 12.4% rate as part of the self-employment tax. For 2011, there was a temporary rate reduction to 4.2% for employees and to 10.4% for self-employed persons.
The above-the-line deduction available for teacher's out-of-pocket classroom expenses expires at the end of 2011. This deduction will not be available for 2012 unless renewed by Congress.
Two separate provisions impacting the alternative minimum tax (AMT) will expire at the end of 2011. First, 2011 will be the last year when personal tax credits will be allowed to offset both the regular tax and the AMT. For 2012 and future years, tax credits will offset the regular income tax, but not any alternative minimum tax.
Secondly, the temporarily patched exemptions for the alternative minimum tax will end in 2011. For 2012 and future years, the AMT exemption amounts will revert to a lower statutory amounts ranging from $22,500 to $45,000. This will result in more taxpayers being subject to the AMT, and will increase the adjustments for taxpayers already subject to the AMT.
The refundable nature of the adoption tax credit expires at the end of 2011. For 2012, the maximum amount of the adoption credit decreases slightly from $13,360 (in 2011) to $12,650 (in 2012). For 2012, any unused non-refundable adoption credit can be carried forward up to five years to offset the regular income tax.
For 2011, the tax-free exclusion for mass transit fringe benefits was set at $230 per month and was the same amount for tax-free parking benefits. For 2012, mass transit benefits no longer enjoy parity with the parking benefit. The 2012 amount for mass transit benefits eligible for tax-free treatment is $125 per month; while the parking benefit amount is set at $240 per month.
The deduction for mortgage insurance premiums expires at the end of 2011. This deduction will not be available for 2012 unless renewed by Congress.
The optional sales tax deduction expires at the end of 2011. This deduction is available in lieu of the deduction for state and local income taxes, and is particular valuable for taxpayers who live in
states with no income taxes.
A special 100% bonus depreciation is allowed for the purchase of new equipment placed in service in 2011. In 2012, bonus depreciation reverts to being 50% of the purchase price of newly acquired equipment, and after 2012 bonus depreciation goes away entirely.
The Section 179 expensing deduction can be taken on newly acquired equipment (both brand new and used) worth up to $500,000. This higher dollar amount expires in 2011. For 2012, the dollar limit for section 179 expensing will be $125,000. For 2013 and later years, the dollar limit will revert to $25,000.
For shares in a small C-corporation acquired in 2011, 100% of the gains upon the sale of that stock can be excluded from tax if the shares are held at least five years. This 100% exclusion benefit applies to original issue stock acquired before the end of 2011. For stock acquired in 2012 or later years, the tax-exclusion is limited to 50%.
Preferential S-corporation basis adjustments for charitable donations expires at the end of 2011. This rule instructs S-corporations to adjust the basis of S-corporation stock by the adjusted basis of property donated to charity, even though the S-corporation reports a passed-through deduction at the property's fair market value. For 2012 and later years, the S-corporations will reduce basis by the fair market value of the donated property.
