Broker Check

January 30, 2012


The following tax rates and amounts are effective for 2012:

  1. OASDI rate remains at 4.2% through February 28, 2012. The rate is expected to rise to 6.2% effective March 1, 2012 pending legislature agreement. The wage base rises to $110,100.
  2. Medicare rate remains at 1.45% and there is no wage limit.
  3. There is a 3.6% cost of living hike for Social Security beneficiaries this year. The maximum earnings one can earn before socialsecurity benefits will start to be withheld is $38,880 for those under age 66. Those between age 62 and age 66 can earn $14,640. For each $2 earned above that, $1 of benefits is lost. There is no limit on earnings for those older than 66. The retirement age for social security continues to rise this year. Those turning 62 this year are affected. They will get reduced benefits if they start receiving payments before they attain age 66. Ultimately, anyone born after 1959 will not get full benefits before age 67.
  4. Personal exemptions rise to $3,800 and exemptions will not phase out in 2012 due to high income. Phaseout returns in 2013.
  5. Standard deduction rises to $11,900 plus $1,150 for each spouse 65 or older. For children age 14 who must file returns, it remains at $850.
  6. Income tax rates will remain at 10%, 15%, 25%, 28%, 33%, and 35%. Dividends are taxed at 15%. Those in the 15% or lower brackets receive a 0% rate on gains and dividends. 15% bracket is doubled for marrieds over singles for 2012.
  7. Alternative Minimum Tax rate remains at 26% on first $175,000 of income for marrieds and 28% over that. Exemptions from the minimum tax rise slightly in 2012.
  8. Back up withholding rate remains at 30%.
  9. 401(k), 403(b) and 457 contribution pay-in limitation rises to $17,000, with $5,500 additional for employees 50 and older.  Ceiling on SIMPLE plans remains at $11,500 but folks age 50 or older can put in an additional $2,500 in 2012.
  10. Maximum level of pay on which pay-ins to plans can be based upon rises to $250,000 with the maximum pay-in for defined contribution plans rising to $50,000. Percentage of compensation that can be put in remains at 100%. Profit Sharing percentage remains at 25%. Benefit limit rises to $200,000.
  11. Business meal and entertainment deductibility remains at 50%.
  12. Federal estate tax exemption rises to $5,120,000 from $5,000,000. Maximum Estate and Gift rate remains at 35%. Lifetime gift tax exemption remains at $5,000,000.
  13. Maximum amount of equipment eligible for expense election for small businesses is $139,000 of assets with useful lives of 20 years or less.
  14. Simplified per diem allowances are up slightly.
  15. Phaseout for IRA deductions start at $92,000 and ends at $112,000 for couples. Phaseout for singles is from $58,000 to $68,000. If only one spouse is covered by a plan, the phaseout zone for deducting a contribuiton for the spouse who is not covered begins at $173,000 of AGI and ends at $183,000. Contribution limit remains at $5,000. If 50 or older, can contribute up to $6,000.
  16. The interest exclusion on U.S. Savings Bonds redeemed to pay qualified higher education expenses starts to phase out at AGI above $109,250 for marrieds.
  17. Eligible portion of long term care premium rises to $4,370 for those age 71 and older, $3,500 between ages 60 and 70, $1,310 between ages 50 and 60, $660 from 40 to 50 and $350 for age 40 and under, deductible as medical expenses.
  18. Medicare Part B premium rises to $99.90, for those singles with AGI under $85,000, Maximum premium rates rise to $319.70.
  19. The Nanny tax threshold rises to $1,800. No social security tax is due for domestics paid $1,800 or less this year. It is not indexed for inflation. FUTA is due whenever a domestic employee is paid $1,000 or more in a calendar quarter in the current or prior year.
  20. The exemption from the Kiddie Tax for 2012 remains at $1,800. A parent will be able to elect to include a child’s income on the parent’s return for 2012 if the child’s income is more than $850 and less than $8,500 and the child needs to be less than 20.  If earned income of child is less than ½ the support, age rises to 24.   If Kiddie Tax applies, a child’s earned income over $1,800 is taxed at the parents’ marginal rate
  21. Low and middle income savers can still get a tax credit of up to $1,000 for contributions made to IRAs and qualified plans. Credit disappears for marrieds when AGI hits $55,500, $27,750 for singles.
  22. Adoption tax credit lowered to $12,650 of expenses, from $13,360. Phaseout starts at $189,710 AGI.
  23. Hope and Lifetime Learning credit phaseout for MFJ starts at $104,000, $52,000 for singles.  The maximum Hope credit remains at $2,000.
  24. Gift tax exclusion remains at $13,000 per donee for gifts made in 2012.
  25. The limit on deducting contributions to Health Savings Accounts rises to $6,250 for family coverage and $3,100 for individual coverage. Account owners born before 1955 can put in an additional $1,000. Ceiling on out of pocket cost rises to $12,100 for family coverage and $6,050 for individual coverage.  HSAs can be rolled into IRAs.
  26. The 10% credit for energy saving improvements up to a maximum credit of $500 ended in 2011. See our August 2005 Newsletter for details. It does not exist for 2012.
  27. The up to $250 above the line deduction for teachers’ out of pocket classroom related expenses are eliminated for 2012.
  28. Companies can deduct 9% of income from U.S. production activities.
  29. U.S. taxpayers working abroad have a higher exclusion, $95,100, up from $92,900.
  30. Landlords must file 1099s if they pay a service provider $600 or more.
  31. Federal minimum wage is $7.25, food service employees, $2.13. New Jersey and New York Minimum wage is $7.25.  New York tipped employees, $4.29.  Connecticut minimum wage is $8.25, tipped employees $5.52.  Pennsylvania minimum wage is $7.25 with tipped employees $2.83.
  32. Credit and Debit Card companies will issue 1099s on payments made to merchants in 2012. Third party networks such as Paypal will issue 1099s to payees with over 200 sales transactions and more than $20,000 in sales income.
  33. S Corporations and partnerships owe a penalty of $195 per owner or partner per month for up to 12 months for failure to file on time.
  34. High income taxpayers can convert their IRAs to ROTHs. The $100,000 AGI cap is gone.
  35. Self-employeds can no longer deduct health insurance premiums on Schedule C.
  36. Nearly all businesses must wire tax deposits to the IRS.
  37. Standard mileage allowance for business remains at 55.5¢ per mile. 23¢ a mile for medical purposes and job related moves, a .5¢ drop. Remains at 14¢ per mile for charitable driving.



The IRS has officially launched a competency test for unenrolled preparers. You may not be aware of this, but except for CPAs, lawyers, and enrolled agents, anyone could hang out a shingle and prepare tax returns for a fee. Anyone; that means without any education or credentials, whatsoever. The Kiplinger Tax Letter 12/9/11.

Ponzi Scheming

The IRS has eased the rules on claiming losses from Ponzi schemes. If the person who operated the Ponzi scheme dies before being indicted, the victims remain eligible to use a special IRS rule to deduct 95% of their losses as theft losses. Originally, the relief rule could only be used if the scammer was criminally charged with theft.

The IRS is deficient in monitoring who is claiming Ponzi scheme losses. Treasury inspectors say IRS approved millions of dollars in erroneous Ponzi loss write-offs. The IRS will revise Form 4684 to require separate reporting of these losses and will open a special audit project to measure compliance in this area.

As always, if you have any questions about these or any other matters, do not hesitate to call me.

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