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Pathways Advisory Group, Inc.
Dustin Smith, CFP®  |
Uncertainty is always a factor with tax planning, but the past few years have been particularly difficult. Fortunately, we have one more year of (relative) certainty before we encounter the (potential) expiration of Bush era tax rates in 2013. Here is what to expect in 2012:
Income Tax Rates: Don’t expect any changes to income tax rates or the special dividend/capital gain treatment in 2012. However, income tax brackets will be adjusted slightly for inflation.
Estate Tax: The Estate Tax exemption rises with inflation to $5.12 million in 2012 but the annual Gift Tax exemption amount will remain $13,000.
Social Security: The annual earnings limit for “early” Social Security retirees will increase from $14,160 in 2011, to $14,640 in 2012. The amount of earnings subject to FICA (Social Security) tax, otherwise known as the “wage base”, also increased from $106,800 in 2011, to $110,100 in 2012. The much-publicized year-end “spat” in Washington resulted in an extension of the 4.2% employee FICA tax rate (down from 6.2%) through February 29, 2012.
Medicare: The Medicare tax rate remains at 1.45% (2.9% for Self Employed) on all earnings. However the Affordable Care act did provide some premium relief with Medicare Part B premiums down from $115.40 per month in 2011, to $99.90 in 2012. Keep in mind, however, that Part B premiums are adjusted for high income taxpayers.
Education Credits: You can expect the American Opportunity Tax Credit, the Lifetime Learning Tax Credit, and the Student Loan Interest deduction to remain intact through 2012.
Expired Provisions…. Maybe: The AMT exemption and the (itemized) sales tax deduction have not (yet) been extended into 2012. Without an extension of the (itemized) sales tax deduction, taxpayers from states without an income tax will be impacted the most (Washington, Nevada, Alaska, Florida, New Hampshire, South Dakota, Texas, Tennessee and Wyoming). Without an extension of AMT exemption levels, the exemption will revert to year 2000 levels and affect millions of new taxpayers. Another year-end AMT “patch” seems likely given the implications.
Let's hope for a more permanent tax structure next year. In the meantime, these are the rules of the game.
The above explanations are summarized. The list is not all inclusive. Please confirm all specifics with your tax professional.
