Now that April 17 is behind us, what do taxpayers do for the rest of 2012? If you received a refund this year, perhaps you can use it to pay for part of your vacation. But after that, you might want to get down to the hard business of planning for the 2013 tax bill on your 2012 taxable income. This year could present special challenges with the expiring tax provisions.
What expiring tax provisions? If you remember back in late 2010, a lot of the Bush tax cuts were set to expire. At the last minute, many provisions were extended through 2012. Well, 2012 is here and, barring any new law changes, many tax provisions will bite the dust at years’ end.
There are several energy incentives slated to drop off the books in 2012 – many of which affect small oil and gas producers and won’t be discussed in this article. The incentives that affect most taxpayers are credits for certain energy-efficient appliances and other non-business energy property. Credits for energy-efficient appliances will expire along with those for home products such as windows, skylights, roofs, air conditioners and the like.
Individual Tax Provisions
The following are the major provisions affecting individuals that are set to expire at the end of 2012:
- Deduction for up to $250 in teachers’ unreimbursed expenditures for educational supplies used in the classroom
- Deduction for sales taxes
- Above-the-line deduction for qualified tuition and related expenses
- Reduction in marginal tax rates, including creation of the 10 percent tax bracket
- Reduction in capital gains rate to 15 percent and the 15 percent tax rate for qualified dividends
- Marriage penalty reduction
- Child tax credit of $1,000 will decrease to $500 in 2013.
- Payroll tax cut
- Alternative Minimum Tax (AMT) patch
Business Tax Provisions
The following are the major provisions affecting businesses that are set to expire at the end of 2012:
- Credit for up to 20 percent of certain wage payments made to active duty members of the uniformed services of the United States
- The rules allowing higher deductions for depreciation, including bonus depreciation and Code Section 179 expensing, expired on Jan. 1, 2012. In 2012, you can expense as much as 50 percent of qualifying property as bonus depreciation and up to $139,000 in property under Code Section 179. Generally, expenditures after Dec. 31, 2012, for qualifying property do not qualify for bonus depreciation. There are certain exceptions. Additionally, the Section 179 deduction decreases to $25,000 beginning in 2013.
All told, the expiring individual tax provisions will add approximately $409 billion in taxes in 2013, according to a study performed by the Heritage Foundation. Adding in estate, business and other provisions expiring in 2012, along with additional taxes from the health care legislation, the total one-year tab is expected to be approximately $494 billion. Assuming the economy grows, this tax bill will continue to increase.
The Bottom Line
Consider your options carefully when entering into taxable transactions in 2012. Take care in both the character and timing when executing. For example, if there is no change between now and year’s end, capital gains tax will increase on Jan. 1, 2013. If you can take a gain in 2012 and pay 25 percent less tax in 2012 than in 2013, wouldn’t it make sense to do so?
While some decisions can be executed on a moment’s notice, others take careful planning. Given the fact that this is a presidential election year, legislators and the president will want to be seen in a light that will garner the most votes come November. It behooves you to make your business decisions with an eye toward the news.
If you have a question, give us a call. We are always here for you.
Have a terrific May and remember our service members (past and present) this Memorial Day.