Approximately 60 provisions are set to expire at the end of this year, unless Congress acts to extend them. Although, there is a strong push to avoid any tax increases at a time when the economy might still need a mix of short term stimulus measures. However, it’s not too late for Congress to act. Last year Congress acted on December 17, 2010, with the two-year extension of the Bush-era tax cuts. It may be prudent to assume that Congress will not act to extend these tax breaks another year or two. Here are a few highlights of the many expiring provisions:
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- AMT Exemption Amount – The alternative minimum tax exemption amount is scheduled to drop significantly from 2011 to 2012. Unless Congress acts, it will decrease from 2011’s levels of $74,450 to $45,000 for joint filers and surviving spouses, and from $48,450 to $33,750 for single individuals other than surviving in 2012. The bottom line is AMT is estimated to affect one in five taxpayers married filing jointly with incomes between $100,000 – $500,000.AMT computes a tax liability without regard to exemptions or the standard deduction. This affects families with a large number of dependents. Additionally, there are no deductions for taxes, such as, state income tax, real estate taxes or personal property tax. Also not allowed are miscellaneous itemized deductions subject to the 2% floor, such as, unreimbursed employee business expenses, tax preparation fees, etc. Interest paid on a home equity line used to pay for expenses other than buying, building or constructing a home—i.e., buying a car or paying college tuition—are not deductible for AMT purposes. However, having paid AMT one year, a taxpayer may be able to claim a credit against regular tax in future years.
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- Mortgage Insurance Premium Deduction – Premiums paid for qualified mortgage insurance for periods after December 31, 2011 will no longer be treated as “qualified residence interest.” This insurance is provided by the Veterans Administration, the Federal Housing Authority, the Rural Housing Administration and private mortgage insurance companies.
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- Sales Tax Deduction – Since 2004, taxpayers have been able to elect to deduct state and local general sales tax in lieu of state and local income tax. This alternative deduction is scheduled to end after the 2011 tax year. Although it may be hard to believe, certain states that have no income tax but do have a significant sales tax may be left out in the cold, especially during an election year.
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- Commuting Benefits – Starting in 2012, the monthly benefit that may be received tax free as a “qualified transportation fringe benefit” will be lower for mass transit benefits than for qualified parking. For 2011 they were both inflation-adjusted at $ 230 per month.
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- Teachers’ Deduction – The above-the-line deduction for expenses up to $250, paid or uncured by an eligible educator for K-12 classroom materials and equipment, ends for tax years beginning after 2011.
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- Deduction for Tuition and Related Expenses – The above-the-line deduction for qualified tuition and related expenses, ranging from $ 2,000 to $ 4,000 (depending on AGI level), is scheduled to end after December 31, 2011.
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- Expanded Adoption Credit – While the 2010 Tax Relief Act extended the general adoption credit through 2012, it did not extend the enhancements to the adoption credit and exclusion made by the Health Care Act. As a result, the credit is not refundable after 2011, and the additional $ 1,000 credit under the Health Care Act will not be available after 2011. However, some of the rules for adopting a foreign child are not the same as the rules for adopting a child who is a U.S. citizen.
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- IRA Distributions For Charitable Purposes – Up to $ 100,000 may be donated directly from an IRA to a qualified charity, without the distribution being included in the donee’s income. This treatment will no longer apply to distributions made in tax years beginning after December 31, 2011.
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- Energy Tax Provisions-Nonbusiness Energy Credit – The credit for nonbusiness energy property that meets the requirements for “qualified energy efficiency improvements,” which are expenditures for furnaces, central air conditioners, water heaters, certain heat pumps and biomass stoves, will end for property placed in service after December 31, 2011.
- The 2% FICA Rate Reduction for Employees: This was for 2011 only. Remember, it is only the employee share that was reduced from 6.2% to 4.2%; the employers rate remains at 6.2%. For self employment purposes the rate of 15.3% is 13.3% for 2011, since it is the employees’ share that was reduced by 2% only.
- Update: This has been extended to January 1, 2013.
At Henssler Financial we believe you should Live Ready, which includes taking advantage of tax deductions while they are available. If you have questions regarding your year-end tax planning, the tax experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or e-mail at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
