7/28/2019 11 Changes You Must Know Before Filing Your Tax Return for 2012

1/3

11 Changes You Must Know Before Filing

Your Tax Return for 2012

With so many changes looming for 2013, it's easy to forget that there were somesignificant tweaks to the Tax Code for 2012. Here's a list of eleven changes to keep inmind before you file your 2012 tax return, due April 15, 2013:

1. Payroll tax credit will still affect self-employed taxpayers. The expiration of thepayroll tax credit for 2013 was big news - but dont forget that the credit was still in placefor 2012. While that means nothing for employees subject to withholding (no additionalbreaks on your federal income tax return since youve already received the benefit of thepayroll tax credit in your withholding), if you were self-employed you will receive anadjustment on your self-employment (SE) taxes when you file your federal income taxreturn. Your SE tax will be reduced by 2%; the SE tax rate of 12.4% is reduced to 10.4%.

2. Forms W-2 have more information this year. Under the Affordable Health Care Act,most employers are required to report the value of health care benefits received by anemployee on a 2012 federal form W-2 (a few small businesses are still exempt fromreporting under the transitional relief offered by IRS). The amount will be reported in box12 with Code DD and should include both the portion paid by the employer as well asany amount paid in by an employee. Even though it appears on a W-2, this amountremains federal income tax free for 2012.

3. Roth Conversions May Be Taxable. Taxpayers who converted or rolled overamounts to a Roth IRA in 2010 and did not elect to include the entire amount in income

in 2010 may need to report half of that taxable income on their 2012 returns. Favorabletax treatment made conversions in 2010 more appealing than normal: specifically,taxpayers had a three year window to pay the taxes due. That window expires with taxyear 2012.

4. Relief For Underwater Taxpayers. With record numbers of taxpayers in foreclosure,Congress enacted the Mortgage Forgiveness and Debt Relief Act of 2007 to providelimited tax relief for taxpayers facing financial difficulties. Under the Act, qualifiedhomeowners who were forced into foreclosure or mortgage restructuring on a principalresidence could exclude income of up to $2 million ($1 million for married taxpayersfiling separately) on the mortgage forgiveness (the difference between the lower amountreceived and the higher amount owed to the mortgage company). The fiscal cliff tax dealextended that tax relief through 2013 making it possible for taxpayers to avoid a huge taxbill on 2012 short sales.

[More from Forbes: 15 Ways To Invite An IRS Audit]

5. Increased Standard Deduction.The amount of the standard deduction increased forall taxpayers in 2012. The rates for 2012 were:

http://www.forbes.com/pictures/ehkm45mlli/15-ways-to-invite-an-irs-audit/?utm_source=finance.yahoo.com&utm_medium=partner&utm_campaign=11%2Btax%2Bchanges&partner=yahoohttp://www.forbes.com/pictures/ehkm45mlli/15-ways-to-invite-an-irs-audit/?utm_source=finance.yahoo.com&utm_medium=partner&utm_campaign=11%2Btax%2Bchanges&partner=yahoo

7/28/2019 11 Changes You Must Know Before Filing Your Tax Return for 2012

2/3

Single: $5,950, up $150 from 2011

Married Filing Separately: $5,950, up $150 from 2011

Head of Household: $8,700, up $200 from 2011

Married Taxpayers Filing Jointly and Qualifying Widow(er): $11,900, up $300

from 2011

This is good news for most taxpayers since two out of every three taxpayers will claimthe standard deduction in 2012.

6. Increased Personal Exemption. Similarly, the value of the personal exemptions for2012 also increased. While exemptions were worth $3,700 in 2011, they rose to $3,800for 2012.

7. Sales Tax Deduction Still An Option. Taxpayers who itemize may deduct stateincome taxes paid on their federal return putting those taxpayers who live in a state

without an income tax arguably at a disadvantage. A federal law which allowed taxpayersthe option of choosing to deduct state income taxes paid or sales taxes paid offeredtemporary relief for those folks - and those who made high dollar purchases but lived inlow tax states. That tax break - which debuted in 2005 - expired at the end of 2011.However, the tax deal extended that option through 2013, making it still a viable optionfor taxpayers in 2012.

8. Tax Breaks for Charitable Donations from IRAs Extended. The new tax dealextended the qualified charitable distribution provisions which were set to expire through2012 and 2013. Generally, distributions from an IRA are taxable when withdrawnwhether payable to an individual or a charity. However, under the special rules, a

withdrawal from an IRA (other than an ongoing SIMPLE or SEP) owned by anindividual who is age 70 or over that is paid directly to a qualified charity can beexcluded from gross income. Up to $100,000 of distributions be distributed - and thatamount can be used to satisfy a taxpayers required minimum distributions (RMDs) forthe year. Even better? Special rules allow taxpayers to treat donations made beforeFebruary 1, 2013, as qualifying distributions for 2012.

9. Education Tax Breaks Strengthened. The American Opportunity Credit (the super-charged version of the Hope Credit) was extended through 2012 for expenses paid fortuition, certain fees and course materials for higher education. The maximum creditavailable is $2,500 in 2012 which includes 100% of qualifying tuition and related

expenses not in excess of $2,000, plus 25% of those expenses that do not exceed $4,000.Additionally, the Lifetime Learning Credit sticks around for 2012, capped at $2,000,which applies to 20% of the first $10,000 of qualifying out-of-pocket expenses (but nodouble-dipping: you can't claim both credits in the same tax year for the same student).Also getting a boost? The above-the-line Tuition and Fees Deduction was extended sothat taxpayers who don't itemize can continue to benefit.

[More from Forbes: Taxes From A To Z]

http://www.forbes.com/pictures/ehkm45edddf/a-is-for-alimony-4/?utm_source=finance.yahoo.com&utm_medium=partner&utm_campaign=11%2Btax%2Bchanges&partner=yahoohttp://www.forbes.com/pictures/ehkm45edddf/a-is-for-alimony-4/?utm_source=finance.yahoo.com&utm_medium=partner&utm_campaign=11%2Btax%2Bchanges&partner=yahoo

7/28/2019 11 Changes You Must Know Before Filing Your Tax Return for 2012

3/3

10.Alternative Minimum Tax (AMT) Relief. The tax deal passed in January 2013provided significant AMT relief for middle class taxpayers in 2012 - and beyond. TheAMT exemption for 2012 was increased to $50,600 for single taxpayers (an increase ofnearly $20,000) and $78,750 for married taxpayers filing jointly (an increase of morethan $30,000). Even better? Beginning with 2012, AMT relief will be adjusted for

inflation each year - no more patches!

11.Adoption Credit Survives - But Is Limited. Under the new tax deal, the adoptioncredit was saved. Originally, the adoption credit was scheduled to sunset at the end of2010 but was temporarily extended as part of the Tax Relief, Unemployment InsuranceReauthorization and Job Creation Act of 2010; it was also made refundable (anonrefundable credit can reduce the amount of tax you owe to zero while a refundablecredit can reduce your tax liability to zero and any remaining credit will be refunded toyou). The new tax deal did extend the adoption credit permanently with one significanthit: the credit is no longer refundable. The credit was only refundable in 2010 and 2011.Taxpayers in 2012 can claim the adoption credit but it is not refundable.