Tax Savings and Changes in 2012

In 2012 many people will see a boost in their tax savings. This change won’t become completely visible until it’s time to file 2012 taxes due on April 15, 2013. However, the effects begin on Jan. 2, 2012. There was no great fanfare or fight in Congress to make the change. Instead, the modification and savings come quietly due to what is known as an adjustment for inflation that affects all Americans and taxpayers.

The specific changes will expand the tax brackets that people fall into, making it possible for those on the edge of a tax bracket to fall into a cheaper one. Additionally, for those who don’t itemize their taxes, the standard deduction amount allowed to be claimed by both individual filers as well as those married, filing jointly, will increase. Standard exemption amounts will increase to $11,900 for married couples who file on the same return. Individuals can claim $5,950 and head of household filers can claim $8,700. These amounts boost the aforementioned deductions by $300, $150, and $200 respectively. Finally, the exemption amount will also jump slightly. The increase will boost the exemption per claimed individual and dependent up to $3,800 per individual, an increase of $100 from the prior year’s allowed amount.

Those who itemize their deductions won’t be allowed to also claim the standard deduction. However, two-thirds of filers don’t go through the hassle of itemizing, so the boost will have a significant effect on a large portion of expected tax filers.

Every tax bracket will also see tax savings. Each tax bracket will be expanded for the range of income it covers. This means those on the edge of one bracket to the other stand a good chance of dropping to the lower bracket. It also makes it more possible for those that are close to plan tax changes to make sure they drop into the lower-costing bracket as well. The savings difference can be huge. Changing to a lower tax bracket can means being taxed 15% of your income earned rather than 25% in some cases. This threshold, for example, triggers now at $70,700 of taxable income after adjustments. The previous level was $69,000.

For lower income earners, the earned income tax credit or EITC also sees a bump in 2012, providing further tax savings. They will see an increase in the EITC of $140, raising the credit to $5,891. This tax credit doesn’t work for everyone. Those with an income limit higher than $50,270 will not be eligible to claim the credit. The bigger the family, of course, increases ones eligibility as well.

For those working overseas, normally such taxfilers see an exemption from taxes on the first $93,100 earned overseas. Even if out of country, U.S. citizens and residents still need to pay taxes, but at least $2,000 more will be exempted in 2012. The foreign income will increase in the next year to $95,100 as a result of the inflation adjustments.

For those who went to college and took out student loans, various tax credits are available to offset these costs. However, the credits phase out as people earn more money. For such filers, the phase out will now be $2,000 higher for married couples, filing jointly ($104,000), and $1,000 more for individual filers ($52,000).

Finally, for those dealing with estate planning or probate, the estate tax rises slightly, exempting $5,120,000 of an estate before inheritance taxes begin to apply. Keep in mind this change does not extend to state taxes which also can reach into estate transfers.

Of those tax areas that were not changed by the inflation modifications, the gift tax was one of them. The limit still remains at $13,000 in terms of how much one person can give another, whether as a lump sum or in aggregate amounts from the same person. If gifts exceed this amount, then the giver will have taxes due, not the recipient. Standard deductions amount for disabled persons or seniors also still remain the same as well.

More details on these changes expected in 2012 can be found on the IRS Website under Revenue Procedure 2011-52 or under Internal Revenue Bulletin 2011-45.


U.S. Internal Revenue Service: Revenue Procedure 2011-52

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