The signing of the American Taxpayer Relief Act of 2012 extended many expiring tax deductions and credits through 2013. With these changes come updates to the forms you use at tax time. What can you expect to see this tax season?
Let's start with the Form 1040. The IRS removed the "reserved" designation or description that was used on many lines as a placeholder until the final law was passed. The names of deductions and credits have been added to lines of the Form 1040 and other affected forms and schedules as well. Accordingly, many Form 1040 lines may have new and different descriptions from previous versions you may have seen.Because nothing is ever simple when it comes to taxes, two lines on Form 1040 continue to have "reserved" on them:
- Line 67 where the First-Time Homebuyers credit was reported in previous years
- Line 71, box "b" where the refundable Adoption credit was reported. The current nonrefundable Adoption credit is reported on Line 53.
What about the other forms? Schedules C, E, and F no longer have a separate line to report Form 1099-K, gross receipts from payment cards and third-party network payments. The Form 1099-K is an information form to help business, rental property and farm owners ensure all income received from credit card and payment processing companies is included in their gross income on the appropriate form.
Other forms, such as those for energy credits, adoption credits, depreciation and the general business credits will not be final and available for filing until late February or early March due to the amount of programming changes necessary.Well, that's great. But what do these changes mean to you and how will they affect your taxes? Let's take a closer look to the 2012 changes:
- The standard deduction amounts have increased slightly this year due to the annual inflationary adjustment.
- Tax bracket spreads slightly increased for each level based on the annual inflationary adjustments. This and the increased standard deduction will create a slight decrease in taxes resulting in an increase in refunds for many taxpayers.
- The Alternative Minimum Tax (AMT), the tax everyone loves to hate, will continue to affect approximately four million Americans in 2012 since the "patch" was permanently extended and the exemption amount was increased using the same inflationary adjustment applied to other benefits.
- The maximum IRA contribution amount remains unchanged since 2008. Fortunately, you can still contribute the maximum5,000 (6,000 if age 50 or older). Taxpayers age 70½ must start withdrawing from their IRAs based on the value of all of their IRAs and their life expectancy. Taxpayers required to take out a minimum distribution may once again do a direct contribution to their favorite charity from their IRA tax-free and have the distribution count towards the year's required distribution amount. Great way to come out ahead -- contribute to your favorite charity, meet your annual required distribution, and beat the taxman at his own game!
- The Earned Income Tax Credit has some inflationary changes this year as well. The maximum income amounts increased slightly for eligible single and married taxpayers, and the maximum amount of credit for each level has increased slightly.
- The Adoption Credit didn't fare as well, the credit is reduced somewhat this year and is no longer refundable.
- The standard mileage deduction for vehicles used in business or for monitoring investment income increased to 55.5 cents per mile for the full year and the mileage rate for medical and moving purposes dropped slightly to 23 cents per mile.
While this may seem like a lot of change for tax year 2012, with the passage of the American Taxpayer Relief Act in January, most American's taxes will be very similar to last year, but not likely exactly the same. So be sure to know what changed and what impact it has on you. One small line or deduction could put more money in your pocket this year.