Another grueling tax season has passed, this one more difficult
than the previous one. Thanks to new increased disclosure filing
requirements for Schedule D, brokerage statements that came later
than usual, and the mere fact that there was an extra day due to
Leap Year, made this year's season seem longer and much more of
a challenge. It's great to have it behind us, but now is the
time – believe it or not – to start looking
towards next year.
There are several key tax provisions that expired this year, as
well as others that will expire after December 31, 2012. With the
election this upcoming year, the chance of getting changes made
before November is unlikely.
The provisions that expired on December 31, 2011 will certainly
hit most taxpayers in their wallet if they are not extended another
year. The largest tax provision would be the higher Alternative Tax
Exemption or AMT patch. In 2011, a taxpayer filing a joint return
was allowed an AMT exemption amount of $74,450. Without an
extension of this tax provision, that same AMT exemption amount
would decrease to $45,000, which is, of course, a tremendous drop.
And with an AMT tax rate of 26%, this could cost taxpayers
approximately $7,500, as well as increase the number of taxpayers
affected by the AMT.
Several other popular tax breaks that have expired are direct
IRA payouts to charity, the Research and Development Tax Credit,
the college tuition deduction and the write-off of $250 of supplies
for teachers. In addition, for taxpayers that live in a low- or
no-income tax state, the use of state sales tax as an itemized
deduction has expired.
But that is what has already expired. The bigger issue lies with
the tax provisions that will expire on December 31, 2012.
These issues need to be addressed before they expire, and will
likely play a role in a Presidential hopeful's platform. The
biggest issue looming is the sunsetting of the Bush tax cuts, which
would eliminate the lower income tax rates.
Currently, the highest tax rate is 35%, but will increase to
39.6% with the expiration of these tax cuts. In addition, the 15%
maximum tax rate for long-term capital gains would be eliminated
and increased to 20%. Finally, qualified dividends currently taxed
at 15% would be taxed at ordinary income rates that could be as
high as 39.6%.
The bottom line is this – without legislation to keep
these tax rates, people should expect to see a higher tax bill in
In addition to tax rates increasing, the repeal of the personal
exemption and itemized deduction phase-outs will be back. So not
only will people pay a higher rate, but will also not have the same
deductions as in the past, increasing the amount of taxable
Finally, the tax rates for estate and gift taxes will increase.
Currently, the maximum tax rate is 35%, but this too will increase
to a maximum rate of 55%. Also expiring would be the larger
exemptions and the ability for a surviving spouse to take the late
spouse's unused exemption.
So buckle your seat belt for 2012 – this will be a
wild ride, especially if those in charge in Washington D.C.
don't extend many of these important tax provisions.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The Internal Revenue Service has recently published an IRS Large Business & International Directive, which updates an earlier directive to field agents addressing the examination of capitalization and repair costs issues.