Changes in 2012 That Provide Tax Help
Posted by Dean Alexander on Mon, Feb 06, 2012
Ernest & Young’s 2012 Tax Guide has a good summary of the changes for this tax year. Among those are the following:
1) Extension of the Bush tax cut with the lower rate at 10% and the highest at 35%.
2) Zero tax on capital gain and dividends for taxpayers in 10% and 15% tax brackets.
3) No need for a phase out of itemized deductions for taxpayers in high tax brackets. Same thing for the personal exemption phase out.
4) Extension of payroll reduction of social security withheld 4.2% instead of 6.2%.
5) Tax relief for married persons: the purpose of this tax relief is to avoid what is called marriage penalty. A couple is suffering from marriage penalty if their joint taxes are more than the combined taxes of the couple, had they filed a single tax return each.
6) Cancellation of debt on an account of your mortgage is not taxable up to two million dollars for married filing joint and one million if you file separate.
7) Increase of Alternative Minimum Tax exemption. Being subject to alternative minimum tax is usually something we don't like. So, exemption amounts from this tax are good news. Exemption is higher in 2011.
8) Increase of section 179 credit to five hundred thousand. Usually when business owners buy a machine they depreciate it over its useful life which is several years or according to the depreciation system (also several years) sanctioned by the tax laws. Section 179 gives tax relief by allowing the immediate write off of the full cost up to 500k.
9) Sale of small business stock is 100% exempted from capital gains and the gain does not enter the Alternative Minimum Tax calculation, which usually poses a tax problem for the income that manages to avoid the regular tax.
10) Increase in earned income credit for working families with three or more children.
These are some of the changes that may provide tax help to the taxpayers. There are other changes not in favor of the taxpayers such as the elimination of Making Work Pay Tax Relief, as well as the elimination of the health insurance deduction for the purpose of calculating self employment tax. The self-employed can still deduct the health insurance for the purpose of calculation of their adjusted gross income. Finally, you can no longer get an advance on your Earned Income Credit.
What we have not seen is a change to the desperate IRS collection system that we have. We need a system that genuinely responds to people's needs. The rigidity of the collection system, with its ensuing IRS levy, wage garnishment, tax lien and property seizure, and fearful IRS audits has exposed citizens to unneeded economic hardships that drain their resources as well as the government resources. Tax resolution has to respond to an honest objective and assessment to address the needs of those who owe back taxes.
Finally, if there is anything evident from the changes that we see back and forth every year is the need to find a more simplified tax system. I have -with my faint voice among the many, called for abolishing the income tax system and replacing it with a sales tax system. A possible 15% federal tax rate can bring the same amount of revenue the federal government is collecting under the current tax system.
With the new tax system there would be no need for filing, no need for complicated tracking of the annual changes and no need for the prohibitive administrative cost with and without the IRS including the tax court system.