In recent years, as
Congress crafted new laws such as housing bills,
health care reform
or extended tax provisions such as the Bush-era tax cuts, lawmakers
were careful to make sure that no major taxes took effect in 2012.
Why?
Because it's a presidential election year. No candidate wants to
explain to voters heading to the polls why they are facing added taxes.
But there are still many
tax considerations in the coming year. Here are 12 tax tips, reminders and planning tools for 2012.
![Tip 1](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_tgVmzdF9MR7u3HmyrFGQfwTSOO5gGh-9-fwV3zxuTrrdnWw1xIg6YB_77t98esFwLkEG_c1R3ib3RKQWXJ84vDWkZMuox6HCGCBJO15O64-gCNgA1FB5qntm_1Zbi47SaVfp0UWmzkAsCMDHz1QGQ5JBnUn85PxgeNI1F7D8owzZgMISpVXWKxtWMFneQwbr7M8a__WpDUouMPjNpddNunb3R6P1TYcY_WoZtVyKLMkNjETemWD2cpTjOHeq-pLv5lQJKUAkr_aA=s0-d)
Remember
Roth IRA conversion taxes
Anyone,
regardless of income, can convert a traditional individual retirement
account to a Roth IRA. But when that option first became available in
2010, a special feature that year allowed individuals who converted to a
Roth IRA to spread the taxes due on converted amounts equally over the
2011 and 2012 tax years. That means your first Roth conversion tax bill
will be included on your 2011 return filed in 2012. Make sure you have
that cash on hand, and plan now for the 2012 conversion bill.
![Tip 2](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_ujUu1XL2A-2d46HG1YdDVdRMMAVNpfyG_ePnFqBL7C0ErI2tsH-m9q7yOjGgn3jD9I_8ehVhNPxrNoqjuk2j4SQqa2FKpid6AO7KkuQnA51bj2nxZU7BG6_XXOuKwDLnqJRIr8ZNjXADs6H-CVE7ydwYYg5wNFg9Ew73i80zvCBa4XRMyIS_Xm6iiTj01xTrrqxW--k7xkCpXCbzF7h2uNSJj5otTU5zRPFtZYjYXxidScJ17IsmUWw-Ud3atMj3C18XDH79G9dQ=s0-d)
Claim your American Opportunity
The
American Opportunity Tax Credit was a centerpiece of the 2009 stimulus
bill. The new education tax break expanded the existing Hope Credit,
providing a credit of up to $2,500 of the cost of qualified tuition and
related expenses, and up to $1,000 of the credit could come back to the
taxpayer as a refund.
The American Opportunity Credit was
originally supposed to end in 2010, but it was extended through 2012.
However, this could be the credit's last year. Congress is looking for
ways to cut the federal deficit, and allowing tax breaks to expire is an
easy way to save some dollars. If you have eligible education expenses,
be sure to claim the American Opportunity Credit while you can.
![Tip 3](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_tSn6BRJVXQO3wP0DPH5WrsM9dawSAsAk4MiD2zTMBQsi8G-_L35EkeSXwnYD3kFP1BLJmoKh7L143jRXp2XoTrGjPwlNechvkqPrlRsu-efPlRmMuX5k2vPxmvRi4KhF21Ke_6uIiAE1zkzjD0QI8yNYZcNSAZvGbWgK4B1po8fikDlSPdL9XhMI4HKQ1odmTyqaJGH0epfW9GuRYGkmm8prWknN2B46LdNU-ZRlarqrxJtTAgs3dAw7GNStZa9KFLJ28l-QI-DQ=s0-d)
Note health care info on W-2
When
you get your 2011 W-2, you might notice some new information on the
form. Box 12 is where employers will report the cost of your workplace's
group health insurance coverage. This amount is both the amount the
business pays as well as the premiums paid via payroll deductions by the
workers.
Don't freak out. The amount, which will be designated by
the code DD, is not taxable income. It's informational only, designed
to help Uncle Sam confirm taxpayers have coverage. Under the health care
reform law, the Affordable Care Act, the data will help to enforce the
eventual individual coverage if it survives a Supreme Court hearing as
well as the so-called Cadillac tax on more expensive workplace insurance
plans.
However, if you don't see anything in Box 12, don't freak
out about that either. The IRS ruled that reporting 2011 health care
data is optional for employers.
![Tip 4](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_uYZuU-1vNyJHZ0S_DWvZCK6x_sS2BgOp_NUvaqCtYnpg-MfV5br29axfRz0UV_sP6Tv9zN2SVfyJYKrBH14b4na0uVY7pHA6_P5rf-KBEK40gyj8cWvGj5RyDA2srNJsq8GvnfKZmfm5E8tCya3vALBJvEIScXLzPV-f4FuBnJv5xHIZwKeeChRC2qzB8XeV55YUa6xr5-2kyxDBXS3Rhx9vN1s4le-ETSmN3BSr9WJutaG7Ah9JRqL2ZnLfTKuvEqwpOVkujxXg=s0-d)
Pay attention to Form 1099-K
If
you get a Form 1099-K in 2012, don't toss it. The new form records
payments received in 2011 by credit card or through third-party networks
such as PayPal. This added income reporting mechanism was created as
part of the Housing Assistance Tax Act of 2008 and is finally taking
effect for the 2011 tax year because of concerns that some small
businesses do not report all of their income. Previously, the Internal
Revenue Service had to take taxpayers' word that all income was reported
because the agency didn't have access to credit card or online payment
details. The 1099-K changes that.
![Tip 5](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_tkslm-F8xoI8Xpa2xBYIYzFxpURuZO6OY7uUCTVfTimIsh1nHNtUNfBxz6-O9uzacyVjpkNIpuFSucVrvA1CKONHuSse90UTGSZfJWTkwzbFSOiqRXcqr89brgsk8oMHE2WL6-BaaHY3Zz0pbLAhjyL3mzMS0sikCaOAEH5mWzd0E6dlij9ycX37InSObBzt-SYYjyyL36HIht59bZ_6s-uFHUeXi_hXvTODIQJAdjZyc1qNruPEdCdKP0C5T_RoFQvOBrp-Dd=s0-d)
Be ready for basis reporting
Beginning
with the 2011 tax year, brokers must report an asset's basis, the value
that is used to determine profit when you sell, to the IRS. That amount
will show up on the 1099 forms you receive in 2012 for 2011 stock
transactions. Additional basis reporting will be phased in, in 2012 and
2013. You might have heard of this new requirement when your investment
managers asked which type of basis reporting you preferred they use.
Generally, brokers must report the sale of securities on a first-in,
first-out basis unless the customer specifically identifies which
securities are to be sold.
![Tip 6](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_uopE4rSbVr3zYhqxWfXMCKxEeCHs_HXdBPtTfDz1mnKfijt073SBe5oUk5Vzs0TiJ0gpf1yyiE-B87p7tnBDXpEJxMAoWU6NH3iB5j8WRwp7oQVKarkwgnNECsmv0aCybKZ7XJ5tbDjHlYH1Vi93N3F1IMYnJIGo9b59IT8PFl_-OSGntmXX9WiI77Dsq6G9oBhDj2GFHreCvszeVA5KrIyKQMGTkphvDkzmFMCpdTmhAooDPJobTlElcZeUnmG9da1w8jwOuBiw=s0-d)
Accelerate income
Most
tax experts will tell you to pay no tax before its time. However,
impending income tax rate changes might make 2012 the exception to that
traditional tax adage. The top ordinary income tax bracket in 2012 is 35
percent of annual taxable income. If Congress doesn't act, the highest
tax rate will go to 39.6 percent in 2013. So, if you're in the top tax
bracket, you might want to accelerate income into 2012 and pay taxes at
the lower rate.
![Tip 7](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_tkDpZTm9H2xAqL0WA-HjxvoqSmTW9JGJoYTs-41VCLG9GBvGOUoa39eR6JNvo9OVi5offAlbCgwxRaaoY5ULu9SNTnlgQUG97hPCqbooKTjLKSnxbUDAYlUjOdqDV8oNsgWLauk6bJWhG-pfP_eTnCAFXNemo9x5grf3UFoael9GXJXeVsehysN2RjHleNESJ2-lCx8fj9W9MJ6PkRO8gGAZt3JGjS6fY9Pc9MjHrA7J4B2DjFAFbzVJxtPjg7hmGMkjaRt_lc=s0-d)
Cash in winning stocks
Along
with higher ordinary income tax rates, there's a possibility of higher
tax rates on investment income. Through 2012, the top federal capital
gains tax rate is 15 percent for most taxpayers, and no tax is due from
investors in the 10 percent and 15 percent tax brackets. These lower
rates apply to assets held for more than a year. If you believe capital
gains taxes might go up, 2012 could be a good year to lock in profits on
long-term investments.
![Tip 8](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_v2cEcbI8OIvbt8_GNiJ6WPjwDl3ocR3l6XpqvQ8J0Mb0wSl1Tnrw2F1TlpQPxPbulqyx3FroIAANBusi3wJyiQ3w6GJK8b0MX966q2QY5PHVEvNIM7Du21shiBF5AdqQp64KtlYhWpe8aTExiEgkS9zyRHu14MzvYxb5HDwmehw8jQdXkinIJ6Imn17mdsk204ZDy5a8WOvGjVGlx-u0bbe6rYF5dLDX195Z4IuDn3OjvZOE8thbUjH9KZTf_KInDCd9aB-1Tv=s0-d)
Plan for the added Medicare tax
Higher-income
earners always have a few more tax considerations, and that's true in
2012. In 2013, a new 3.8 percent Medicare tax is slated for collection
on profits from the sale of investment property.
This includes
capital gains, dividends, interest payments and, for those who own
rental property, net rental income. The tax will apply to individuals
with a gross income of $200,000 or more or married couples filing
jointly with a combined gross income of $250,000 or more. If you're in
the targeted income brackets, talk with your tax and investment advisers
about steps you can take this year to prepare for the new tax.
![Tip 9](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_spH_th8hFFdJD6fYu1La9bhJpcLF1Ol1FAzr2K6-3DLBPrz6x7sXMz3PRsEDpD6LmnHkbcUUKFwp-WBsPF2QdU9GejmuVsbxrjngmLBsoN9Prqpu0qasskPPiFGjfe8IPtNkU_6P9-6hRbweFYsG8qyg4vIm8zIOvJmvT7uMe1IBPuDhdzVoIpKlkwrXNQ5WC0O2gxVSgxLTHwwyHTYQr6p70BjSWUZ7pwfbUJq9pHpPni6RjC6Q6YS59EK69C4yTRsdeqDjFMWw=s0-d)
Assess AMT danger
The
alternative minimum tax, or AMT, is a continual tax trap for millions
of middle-income taxpayers. This parallel tax system was created in 1969
to ensure wealthier taxpayers pay a minimum amount of taxes, primarily
by disallowing several common deductions that are claimed under the
regular tax system.
But because the AMT is not indexed for inflation, Congress must increase the income levels affected by the alternative tax.
It's
possible that tax reform in 2012 could eliminate the AMT, a longtime
goal of many lawmakers. But just in case that doesn't happen and you
fear you might end up paying the alternative tax, talk with your tax
adviser about ways you can limit your AMT exposure.
![Tip 10](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_vXTyddxsOHkR2Ug8QSgt_4h-z1N7ukJf-obTDqI37LkQZTKizALgjpgS8Wp5XhpWzvsP5XZzvoUsv-ZDgnjCZP_E6T0k-qQoIRztaxaizQcDOWlg1-tNGEQXQDGJV-XGo0D2ChA8tmWCk3rSfvUp1xr7XwguJrN_39z6-I3KV3lYnZInfBLw_pk_PYL3tMqmleuyMuc2LnVXRBmk6BBB_nWURUsSYxd-kg4QLiu_tZbIfsI6r8CJdmrOcihfLx4PBZXRaC6k_BJZM=s0-d)
Give gifts
Giving
to charity can help reduce an annual tax bill, but if you have a large
estate, gifts also are important estate tax tools. Thanks to the
resurrection of the estate tax in 2011, the unified gift tax also
returned. This means you can give away $5 million during your lifetime
without having to pay the 35 percent gift tax.
There's also an
annual amount to note in giving away your estate's assets while you're
still around to get thanks. In 2012, you can give up to $13,000 each to
as many individuals as you wish without any tax costs to you or your
gift recipients.
![Tip 11](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_uyHnpH6r6cFtJIdOlepsa7SVsT9kaoyIjou8yODFIu0EJwE4cuTeYL2NYGLjYvZGm-wQGOuaSwmvSZnp84q1GgqTLIyTntA4MMVr_VE53o8XWhq1FiAvsyok8QVxFJhUkvHu055SD_mnwfDJe0b7UilnIi7YgaiSDx0FCSlNMDuEPeUli_fxQct3PxL78aJqT63fo8UcJEuqEsO-CQ054qU54vvYavQX585zrA2wPWubQKq0TUp7-qzWvbflewAEA_5qGNACDCs3w=s0-d)
Evaluate estate tax implications
Speaking of the estate tax, the inevitable meeting of death and taxes will be a hot topic in 2012. If
Congress
takes no action, the current $5 million estate exclusion will fall to
$1 million, and the tax on estates larger than that will be 55 percent
on Jan. 1, 2013. If your estate will be larger than $1 million, talk
with an estate tax adviser in 2012 about options to reduce any possible
larger federal tax bite.
![Tip 12](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_sXqBdzBa82sGcbpYYXLJbpVGHjV5hpM_hyNuHG5nrAAP5u2K9DUlvOVgZj3JE9WUqsH7633cvFnU1MqWJU-SeYwkdfYtxxc11vk-jxsJrRmAKz-_AYk2FXYy3KSS2ov0zvVrsrmEZtihXKDzAXBWAv8r4wCHzoyw_8cjKeIceQmYIdQbaB1Y-O82CdY0Ma-bxCHWkZ1h6-6BAfxsPFAl-hx8R-6K52umXJXN7iayRo7UN7E9FASJ5bGnmhGtJgwBzQeQXZsYq_Qw=s0-d)
Hire a registered tax pro
The
IRS is continuing its efforts to regulate tax preparers. The process
began with the registration of return preparers and the issuance of a
personal Preparer Tax Identification Number, or PTIN, to each. The IRS
is ramping up its effort to hold tax preparers accountable and weed out
unscrupulous tax pros, with proposals to fingerprint preparers and, in
2013, require them to pass competency exams. If you hire a tax pro, ask
about his or her IRS registration status, along with your usual
inquiries to verify the preparer's ability to meet your tax needs.
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