Tax Changes Affecting Your 2012 Tax Filing (Tax Year 2011)

By JC Leahy, MA Accounting
TaxHelpWhenYouNeedIt.com

Tax laws change every year.  Here's a rundown of some changes that pertain to your 2011 income tax filing.  The filing deadline is April 17, 2012.

• Income Tax Rates - Income tax rates stayed the same from 2010 to 2011, but the cutoff points for  brackets shifted slightly upward with automatic inflation indexing.
• Flexible Spending Accounts - If you don't have a medical Flexible Spending Account through your employer, consider getting one because it's a good deal.  (See my earlier article about Flexible Spending Accounts.)  However, starting in 2011, it's not quite as good a deal because you can no longer use your FSA to pay for over-the-counter medications (except insulin).  That's courtesy of the Obama/Pelosi Health Care Reform scheme.

• Energy Tax Credits - The credit for energy efficient improvements to your home (25(c)) was extended for 2011, but with a significant snag.  There is now a lifetime limit of $500 per taxpayer for this credit.  So if you got your $1,500 credit for 2010 and then put in energy efficient home improvements in 2011, you don't get any credit at all.
• Alternative Minimum Tax - AMT exemptions were raised slightly in 2011 to $47,450 for single taxpayers and $74,450 for married filing jointly.  
• Roth IRA Conversions - The income limit for Roth IRA conversions that was new in 2010 has been made permanent for 2011 and beyond. This means that everyone may do IRA-to-Roth-IRA conversions.  However, the option to spread the income-tax hit over the successive two years was not renewed for 2011.  You have until April 17, 2012 to make your 2011 Roth IRA conversion.

Things That Didn't Change for Your 2012 Income Tax Filing

The Child Tax Credit remains at $1,000 per child for married couples with AGI's of up to $110,000 and head-of-household filers with AGI's up to $75,000.

The employee's 2% reduction of Social Security tax remains in place for 2011 and 2012.  This means that employees will pay Social Security tax of 4.2% of wages instead of 6.2%.  Self employees taxpayers will pay 10.4 percent self employment tax up to $106,800 of net self employment earnings.

The Teachers' Classroom Expenses Deduction of $250  remains the same for 2011.

The itemized deduction of state sales tax in lieu of state income tax remains for 2011.

The American Opportunity Tax Credit of up to $2,500 for education expenses remains in place for 2011.

The reprieves from "stealth income taxes" were extended for both 2011 and 2012.  Therefore, no PEP calculation will erode your personal exemptions, which are $3,700 per taxpayer and dependent in 2011.  Also there will be no Pease reduction of your itemized deductions.

Capital gains and qualified dividends continue to be taxed at a maximum rate of 15%, and a zero percent rate for low-income taxpayers.

The gift tax exclusion remains $13,000 per recipient.  Gifts of tuition and medical care are also exempt.

Tax-free donation to charity of IRA proceeds was extended for 2011.


The bottom line is that tax law changes for 2011 are significant if they affect you, so be aware.