Federal Tax Changes for 2012 Returns

Highlights of 2012 Tax Year Changes

Tax Breaks Extended.
Many temporary tax benefits that had expired were extended thru 2013.
These include:
ŸState sales tax deduction used instead of state income taxes on Sch A.
ŸMortgage insurance premiums deducted on Schedule A.
ŸEducator expenses deduction/adjustment.
ŸTuition and fees deduction/ adjustment.
ŸQualified Charitable Distributions (QCD) exclusion from income.
ŸResidential Energy Credits.

Standard Mileage Rates. For business use is 55½ cents a mile. The rate for moving and medical care was reduced to 23 cents a mile. To provide services to charitable organizations the rate is still 23 cents.

AMT exemption increased. The alternative minimum tax exemptions have increased to: $78,750 married filing jointly or qualifying widow(er), $39,375 if married filing separately and $50,600 for single taxpayers. The fiscal cliff bill now indexes the exemption amounts to adjust for inflation.

Roth IRA 2010 conversions. If you converted or rolled over an amount to a Roth IRA in 2010 and chose to report half the income in 2011 and the rest in 2012, the remaining half must be reported as a taxable IRA distribution in 2012.

Additional Child Tax Credit. A new Schedule 8812 (replaces Form 8812). Depending on your circumstances you may have to complete all of the new schedule or only certain parts.

Adoption Credit Lowered. Maximum adoption credit for 2012 is $12,650 and is no longer refundable.

First-time Homebuyer Credit. This credit has expired. If you sold your home or it is not used as a principle residence, generally you must repay all of the credit. First-time homebuyer credits claimed in 2008 must be repaid using the 15 year schedule beginning in 2010.

Equitable Innocent Spouse Relief. An “innocent spouse” may avoid tax liability for a jointly filed return with new streamlined IRS guidelines. These include taxpayers who had no control of family finances and because of abuse, physical or psychological, feared retaliation if the matter was brought up with spouse.

Foreign Earned Income Exclusion and Foreign Housing Exclusion. Only for those who qualify. The foreign earned income maximum exclusion for 2012 is $95,100 and the maximum foreign housing exclusion is generally $13,314.

Reporting Foreign Financial Assets. If you had any interest in or control of a foreign bank account or other foreign assets, you may have to file Form TDF90-22.1 (FBAR) and/or Form 8938 (FATCA).

Estate Tax Exclusion. For 2012 the basic exclusion is $5,120,000. The fiscal cliff bill raised the top estate tax rate from 35% to 40%, with an exemption of $5 million beginning in 2013.

Gift Tax Annual Exclusion. You are allowed an annual exclusion from gift tax of $13,000 per donee for 2012. For 2013 the annual exclusion for gifts rises to $14,000.

Capital Gains and Losses. Beginning with 2011 brokers are required to report cost basis of stocks on a new version of Form 1099-B. This now includes mutual funds purchased after 2011. The tax rates on long-term capital gains and qualified dividends is still 0% and 15% for 2012. However these rates go up starting with 2013 due to the fiscal cliff bill and the health care bill.

Form 1099-K, credit/debit card and third party network payments. Gross receipts reported on Form 1099-K are not separately reported now, such as on Schedule C or Schedule E. The IRS has stated that there will be no reconciliation required in 2012 or future years. However these payments should be considered when determining gross income. You should contact a Form 1099-K issuer about amounts that significantly exceed payment amounts recorded in your business books and records.

Unused Leave Donated for Hurricane Sandy. Employees who donate unused leave to organizations that help victims of Hurricane Sandy will not be taxed on their leave since this would otherwise be taxable income. Employers must see that the donations were sent to IRS approved charities. These contributions cannot be deducted as a charitable donation since they already aren’t taxed.