2012 Tax Changes you need to know! by Jeffrey Brooks, CPA, CFP, MBA

What do I predict will happen with payroll taxes, income taxes and estate taxes for 2012?

Will the payroll tax cut apply for all of 2012?

Yes, because 2012 is an election year and the Republican congress does not want to anger voters.  If the payroll tax cut applied for only January and February 2012, the payroll tax forms would become even more confusing. 

2012 Combined Traditional and Roth IRA Contribution Limits are the same as 2011 because inflation did not increase
If you are under 50 years of age at the end of 2012: The maximum contribution that you can make to a traditional or Roth IRA is the smaller of $5,000 or the amount of your taxable compensation for 2012. This limit can be split between a traditional and a Roth IRA but the combined limit is $5,000. The maximum contribution to a Roth IRA and the maximum deductible contribution to a traditional IRA may be reduced depending upon your modified adjusted gross income (modified AGI).
If you are 50 years of age or older before the end of 2012: The maximum contribution that can be made to a traditional or Roth IRA is the smaller of $6,000 or the amount of your taxable compensation for 2012. This limit can be split between a traditional and a Roth IRA but the combined limit is $6,000. The maximum contribution to a Roth IRA and the maximum deductible contribution to a traditional IRA may be reduced depending upon your modified AGI.

Reduced Bonus Depreciation for 2012
While the 50 percent additional bonus depreciation applies to property placed in service in 2011 and 2012, the 100-percent additional first-year depreciation deduction available in 2011 generally does not apply to property placed in service after December 31, 2011. However, the additional 100-percent depreciation does apply in the case of certain longer lived and transportation property placed in service before 2013.

Reduced Section 179 Expensing Deduction for 2012
For 2011, the maximum Code Sec. 179 deduction is $500,000. For 2012, the maximum deduction is limited to $139,000. The amount of that dollar limitation must be reduced dollar for dollar (but not below zero) by any amount by which the cost of Code Sec. 179 property placed in service during such year exceeds $2,000,000 (for 2011) or $560,000 (for 2012).

What do I think will happen to the Bush tax cuts?

  • The Bush tax cuts will expire at the end of 2012.  I think the election outcome will decide what will happen for 2013 because the Republicans do not want to increase taxes for the “wealthy” while the Democrats want to do so.
  • The alternative minimum tax will remain because repealing the Alternative Minimum Tax would create a large amount of deficits.
  • I think the estate tax return to $1 million exclusion is unlikely. I think the congress will settle on the $5 million exclusion.

The two likely presidential candidates Obama and Romney are for the continuation of the current tax system.  If the tax system was repealed, the government would have to print new money which would create fiscal inflation and higher interest rates.

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About Jeffrey Brooks

Jeffrey Brooks, CPA, CFP, MBA since 1976 has specialized in helping clients save significant taxes, help businesses increase their cash flow, revenues and profits while increasing their control and satisfaction. Jeff and his accounting firm sincerely cares about the happiness of his clients.

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