Tax Changes Coming for 2012

by Dennis Perry on December 5, 2011

Big Tax Changes Coming in 2012     

I recently read a great e-zine article about tax changes in 2012 that will affect all tax-paying Americans.

With the author’s permission, I have copied the text of his article here for you because we all need to be aware of these changes.

The author of the original article is Warren Taryle of Taryle and Associates, PLLC.  Warren can be reached at (480) 948-9510.  Their website is www.tacpas.com.  Email address is info@tacpas.com.

Thank you Warren for allowing me to reproduce your article.

Dr. Dennis Perry

The Wealth Doc

 

Higher Taxes Ahead – Again

Your taxes are scheduled to increase next year, 2012, and even more in 2013. I know Congress’ Super Committee has not issued it recommendations yet and I know the President said he is only going to raise taxes on millionaires and billionaires which many of us are not, but even without that your taxes are scheduled to go up. Many of the tax breaks us 99%’ers have been taking advantage of over the past several years are set to go away at the end of this year and the end of next year.

If Congress and the President do nothing, an average family with two kids making about $85,000 a year could see their taxes increase as much as $4,000 or more with no change in their income.  I guess the “Tax the rich” thing is just a nice slogan.  With these drastic changes looming, this may be one of the most important years to do some last minute year-end tax planning.

Here is what we can expect after December 31, 2011:

The Alternative Minimum Tax (AMT) exemption limits will revert to the prior lower level.  AMT was added to the tax code by Congress to make sure the wealthiest families in America do not escape paying taxes by taking advantage of too many tax benefits. What was originally created some 70 years ago to affect the 100 or so wealthiest families has grown to ensnare millions of middle class families. Even at that, Congress had been passing last-minute plugs to keep AMT from affecting 10 to 20 times more families. Then finally, as part of President Obama’s 2008 tax act, a permanent solution the AMT problem was enacted. Well on December 31, 2011, the permanent fix is set to expire resulting in millions of middle class families falling into the AMT trap.

On December 31, 2011, some very popular deductions will be going away. You will no longer be able to deduct college tuition and related fees. Teachers will no longer be able to deduct supplies they purchase for their class rooms. You will no longer have the option to deduct your state and local sales tax after this year. And after December 31, you will not be able to deduct your home mortgage insurance.

December 31, 2011, also marks the end to some other tax breaks – for example, retired people will no longer be able to make a direct charitable contribution from their IRA’s. The ability to make these direct contributions has saved older retirees thousands of dollars while benefiting many charities.  Also, after this year, the special 2% reduction in payroll tax goes away. There will also be some drastic changes to how personal tax credits can be used.

All of the above is scheduled to go into effect just a few weeks from now at the end of this year, but the end of 2012 will even be worse.

Here is what we can expect after December 31, 2012:

After December 31, 2012, the 10% tax bracket will go away and all the other tax brackets will be compressed. This means that the first taxable dollar you make will be taxed at 15% instead of just 10% as it is now. It also means you will move up into higher tax brackets much quicker. In addition to that, the marriage penalty will come back. If a husband and wife have about the same amount of income, because of the changes to the tax brackets, they will more than likely pay more tax than if the same couple was not married.

2013 will also bring in some other tax rate changes. We will no longer have two capital gains rates. The lower rate will be eliminated. The one rate will be 20% and the healthcare act adds an additional 3.8% surtax.  Dividends will no longer be taxed at capital gains rates, but at the higher ordinary tax rate and yes, an additional 3.8% healthcare surtax. And while I am on the subject, 2013 is when the 3.8% healthcare surtax kicks in on all investment income.  In addition to your regular tax, beginning in 2013, all investment income will have an additional surtax of 3.8%. (Investment income is income from interest, dividends, capital gains, royalties and the like.)

But not all the changes will be to the tax rate. After December 31, 2012, deductions and credits for college expenses will also change.  The American Opportunity college credit will go away. The deduction for student loan interest will also go away. The amount that can be contributed to an educational IRA will be reduced from $2,000 to $500. And speaking of your children, both the childcare deduction and the childcare credit and the adoption deduction and credit will be reduced.

But wait, there is more! Itemized deductions and exemptions will once again be phased out for higher income earners, while on the other end of the spectrum; the Earned Income Tax Credit for lower income families will be drastically reduced. The exemption from income tax of the debt forgiven on the foreclosure of your personal residence will go away.

All in all, the tax increases are spread out and will affect higher income people as well as the lower and middle class. Of course as I said earlier this is only what is scheduled to happen if Congress and the President do nothing – That is a big “if,” but I believe it is very important to plan for the “if,” as well as any other changes that might still come our way.

 

 

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{ 9 comments }

Eva Palmer December 11, 2011 at 4:57 pm

Hi Dennis!
I hink we are having the same issues here in Spain…

Blog sobre Hipnosis

Quit Smoking Hypnosis Westminster Cypress December 8, 2011 at 2:16 pm

Hi Wealth Doctor,

Wow the government really wants to go after increasing its tax income. Do you see the US becoming more of a Socialist country with all of these tax increases and the trillion dollar debt spending? How will we ever break free and kick the country’s bad habits?

Happy Dating and Relationships,

April Braswell
Christian Singles Conference Speaker

Clare Delaney December 8, 2011 at 4:28 am

Very useful information for American taxpayers. Thanks Dennis!

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Body language of jealous women December 8, 2011 at 2:15 am

Dennis, tahnks for addressing this issue. It seems that it is “forgotten” by the media or not represented well.
Scott Sylvan Bell
Reading body language of jealous men
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Covert Hypnosis Techniques December 7, 2011 at 12:05 am

Yikes… I can’t imagine what kind of H*** I will be going through when I am of taxable age…

Mark Hogan

Alex Arshavskiy December 5, 2011 at 8:55 pm

Dennis, thanks for the article! Great summary of future tax changes.

Alex
http://www.leadershipmissinglink.com/negotiation-skills-for-leaders/

Jerry Pinney December 5, 2011 at 10:52 am

Dennis,

Good info. I will share with my tax person and hope he has some good pro-active advice. It seems understanding the tax law is important, but having a pro-active strategy to minimize taxes is also important. Thanks for sharing.

Jerry Pinney

Phil December 5, 2011 at 10:25 am

Dennis,

I appreciate your posting this. It’s timely (and frightening!) info to be sure. Perhaps I’m in denial, but historically Congress has always come to the rescue at the last minute. Sort of reminds me of those old silent movies with the heroine (the American people!) tide to the railroad tracks, the train’s a-comin’, and the hero arrives just in time. This year may be different, of course. The partisan rancor seems even more intense, and that makes this post even more important. But in the end, I’m still hoping, crossing my fingers and rubbing my lucky rabbit’s foot that Congress will fix some of these things. Thanks for the warning, though!

Phil
PhilipHumbert.com

Sonya Lenzo December 5, 2011 at 9:48 am

Dennis, while a great many of these changes do not affect me, I wonder how many people who they DO affect are truly aware of them? You are doing a good service here.
Sonya Lenzo
http://www.sunnyincostarica.com/sunnyincostaricarecommendsholidaygifts/

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