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2012 Tax Changes Print E-mail
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Personal Finance - Taxes
Written by livecheap staff   
Tuesday, 10 January 2012 20:00

1040The 2012 tax changes are here and there are some major changes especially in the Alternative Minimum Tax. Other provisions like the Child Tax Credit remain the same. Understanding how new IRS rules affect you can potentially save (or cost) you hundreds if not thousands of dollars. Here are the major areas of the tax code for 2012.

Alternative Minimum Tax (AMT):

In 2012, the biggest change to taxes is the Alternative Minimum Tax (AMT). Why? The exemption for married couples will plunge from $74,500 to $45,000 and from $48,450 to $33,750 for Single or Head of Household. The change will mean the AMT will apply to many more people.

2012 Child Tax Credit:

In 2012, the child tax credit will continue at $1,000 per child. Taxpayers must earn more than $3,000 in order for the credit to be refundable.

In most cases, the 2012 credit is limited to the amount of tax liability on your income return. In other words, if your credit is bigger than your liability, your liability is just reduced to zero, and the rest is lost.

In some instances you can get a child tax credit refund. This means that you would get a refund of the difference between your tax credit and what you owe in taxes.

Extension of Payroll Tax Reduction:

After a heated battle in Congress, the payroll tax reduction will continue in 2012...at least for 2 months. The current Social Security tax is 4.2%, 2 percentage points less than normal both for the employee and the employer. Congress agreed to a two month extension until February 29th. This gives employees up to $2,202 of additional breaks. In all likelihood, the extension will be passed for the remainder of the year sometime in February. The maximum taxable income for Social Security taxes is now $110,100.

Marginal Rates Remain Same:

In 2012 top earners will see the same 33 and 35 percent marginal rates that they saw in 2011 with the top rate kicking in on taxable income of $388,351. Remember this is based on your taxable income not your "gross income".

Federal Estate (Death) Tax:

If you were rich and died in 2010, your heirs got a huge bonus - zero estate taxes. In 2011, you got a whopping $5MM ($10MM for married couples) exemption. 2012 continues the 2011 exemption and increases it by inflation. The top rate is 35% far less onerous than the old pre 2010 top rate of 55%.

Long Term Capital Gains Rate 15%:

Capital gains rates will remain at 15% for assets held over 1 year. Short term rates will continue at the marginal income tax rate.  In 2013 these rates will rise, but in 2012, you still will get this historically low rate.

These are just a few of the IRS tax changes for 2012. Knowing in advance what type of changes are on the horizon makes it possible for the individuals who will be most affected by these changes to prepare in advance.

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