Tax Law Changes: What You Need to Know for 2012
On New Year's Day 2013, Congress passed the much-talked about fiscal cliff tax legislation, The American Tax Relief Act of 2012, which was signed by President Obama.
This act includes the permanent patch of the Alternative Minimum Tax (AMT), the permanent reduction of tax rates, and reinstating various tax deductions and credits.
The new law specifically extended certain deductions and credits for the 2012 tax returns. TurboTax is updated with the latest tax changes from the IRS, so you can prepare your 2012 returns today.
Here are the most common changes
for tax year 2012:
- Alternative Minimum Tax (AMT): AMT was permanently patched. With this patch, those lower income taxpayer will not be hit with this higher tax. For a good understanding of what this is all about, check out What is the Alternative Minimum Tax and Do I Have to Pay It.
- Educator expense deduction: Teachers can still deduct up to $250 in classroom expenses for supplies, materials, books and software. This tax break is extended for tax years 2012 and 2013.
- Tuition and fees deduction: College students or parents of students can continue to deduct educational expenses related to schooling (including tuition, books and other supplies) up to $4,000. This deduction is also extended for tax years 2012 and 2013.
- State and local general sales tax deduction: When itemizing their deductions on Schedule A, taxpayers have always been able to deduct their state and local income taxes. With this new law, they can continue to deduct instead their state and local general sales tax through 2013.
- Mortgage insurance premiums: The deduction on Schedule A for mortgage insurance premiums was scheduled to expire December 31, 2011. This deduction was extended for tax years 2012 and 2013.
- Nonbusiness energy property credit: Taxpayers can continue to receive a credit for energy efficient products (such as doors, windows, insulations) that they buy and install in their homes for tax years 2012 and 2013. For details, see Home Energy Credits for 2012.
- Charitable contributions of IRA distributions: Generally IRA distributions are taxable and contributions to charity are deductible. From 2006 through 2011, taxpayers who were 70 ½ or older could make a distribution of up to $100,000 directly from their IRS to a charitable organization and not pay tax on the distribution. Also they could not deduct the amount contributed to the charity. This type of distribution is now available through tax years 2012 and 2013.
Note: Since this was late in passing, the law is allowing a taxpayer who already took an IRS distribution in December 2012 to contribute that same amount to a charity before February 1, 2013 and count it as this type of distribution, as long as other requirements are met. Yes, it was not a direct transfer but will be treated as such.
To read more about the late tax law changes and the impact on when the IRS will open the season for 2013, see IRS Announces January 30 Tax Season Opening.
Filing 2012 Taxes: Your Go-To Guide
Whether it's the extended tax deadline, or expiring credits and deductions, we bring you everything you need to know to file your 2012 taxes with confidence.
IRS Announces January 30 Tax Season Opening
The IRS recently announced that it will start processing 2012 tax returns for the majority of taxpayers on January 30, 2013. This opening date is a week later than previously announced, and affects both e-filed and paper-filed returns.