There will be many tax changes occurring this year, unless Congress extends some provisions. Among the tax provisions that expired at the end of 2011 are the following:
* The so-called AMT patch. Without the annual patch, an estimated 27 million more taxpayers will be subject to the Alternative Minimum Tax this year. The AMT was originally designed to make sure wealthy taxpayers could not take advantage of too many tax incentives and reduce their tax obligation by too much. It is a parallel system of calculating tax liability that eliminates many deductions.
* The deduction for state and local taxes. According to the IRS, approximately 11 million taxpayers claimed this deduction last year.
* The deduction for mortgage insurance premiums. The IRS reported 4 million taxpayers recently claimed this deduction.
* IRA withdrawals. This provision allowed individuals over age 70-1/2 to make tax-free withdrawals from their Individual Retirement Accounts to make charitable contributions.
Congress most likely will extend many of these and other expired provisions retroactive to Jan. 1, 2012. However, the IRS doesn't know for certain what will happen.
There is an even larger number of provisions set to expire at the end of 2012. Most taxpayers have heard about the Bush-era cuts. These cuts affect a number of tax deductions and credits. Without debating whether extending or allowing the tax cuts to expire is the right answer, Americans need to be prepared.
The Bush-era tax cuts include marginal tax rates, reduced tax rates on dividends and long-term capital gains, various marriage penalty relief provisions, certain components of the child tax credit, the Earned Income Tax Credit, the adoption credit and the moratoria on the phase-outs of itemized deductions and personal exemptions.
Here are two examples of the difference between 2001 and 2011:
* In 2001, the standard deduction for a married couple was $7,600; in 2011 the standard deduction for a married couple was $11,600.
* In 2001, the child tax credit was $600 per child; in 2011 the Child Tax Credit was $1,000 per child.
These are only a few of the changes that could occur.
The Bush tax cuts were meant to be temporary to stimulate economic spending. However, as each year passes with the extension of these cuts, taxpayers have come to rely on them. There are many who change their deductions because they know they have a credit of $1,000 per child, or will get the earned income credit.
Congress makes its decisions at the end of the year. If the tax cuts are allowed to expire, how many taxpayers will be prepared?
One additional note: With the Supreme Court ruling approving President Obama's health care legislation, under the law people who do not have health insurance will have to pay 1 percent of their income to the IRS starting in 2014.
Take a careful look at how these situations could affect your tax liability and be prepared!
Tracy Bunner is an enrolled agent and tax preparer with an office in Harrisville. She can be reached at 801-686-1995 or at email@example.com