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2013 CCH Whole Ball of Tax
CCH Reviews New Developments Taxpayers Need to Know
(RIVERWOODS, ILL., January 2013) – Last-minute federal tax legislation to avoid the “fiscal cliff” finally addressed many questions of uncertainty that made income tax planning and preparation very challenging. The recently enacted American Taxpayer Relief Act (ATRA) of 2012 contains provisions that take effect immediately and in future years. CCH, a Wolters Kluwer business and a leading global provider of tax, accounting and audit information, software and services (CCHGroup.com), takes a look at recent tax developments impacting 2012 tax returns.
“Although a lot of tax uncertainty was cleared up with long-awaited legislation finally becoming law, many of the new provisions take effect in 2013 and beyond,” said CCH Principal Federal Tax Analyst, Mark Luscombe, JD, LLM, CPA. “Taxpayers and preparers need to make sure that any new provisions or updated figures specifically apply to 2012 when filling out returns this tax season.”
Personal Exemptions, Standard Deductions
For the current 2012 tax season, the inflation-adjusted personal exemption amount that taxpayers can claim on Form 1040 is $3,800 – up $100 from 2011. The personal exemption works like a tax deduction and enables qualifying taxpayers to claim the amount and lower their taxable income. However, those who are claimed as a dependent by another taxpayer are not eligible for a personal exemption.
Standard deductions amounts are also indexed for inflation and offer taxpayers a choice of claiming standard deductions or itemized deductions, but not both. Although the IRS has released standard deduction amounts for 2013, taxpayers need to make sure they are using 2012 levels when filing returns this tax season, which include:
- Single or Married and filing separately – $5,950;
- Head of household – $8,700;
- Married and filing jointly and Qualifying widow or widower – $11,900; and
- Qualifying dependent – $950 - $5,950.
IRS guidelines apply for qualifying children and qualifying relatives who may be claimed as dependents. Taxpayers may also be eligible for additional tax credits related to their qualified dependents, such as the child and dependent care tax credit.
Permanent AMT Relief
With the ATRA’s passage, alternative minimum tax (AMT) exemption amounts were “patched” retroactively for 2012 and increased with an annual inflation adjustment to the exemption amounts for future years. That benefitted more than 25 million taxpayers who would have been impacted by an automatic return to previous AMT levels.
The new 2012 tax season AMT exemption amounts are:
- $50,600 for unmarried individuals;
- $78,750 for married taxpayers filing jointly and surviving spouses; and
- $39,375 for married taxpayers filing separately.
The ATRA also provides that all nonrefundable personal credits are allowed to the full extent of a taxpayer’s regular tax and AMT liability, effective for tax years beginning after 2011. Generally, taxpayers may be subject to the AMT if their taxable income for regular tax purposes plus any adjustments and tax preference items results in an amount higher than the AMT exemption amount.
Mortgage Debt Relief Act Extension
Passage of the ATRA also included a deadline extension of the Mortgage Debt Relief Act to the end of 2013. The act helps homeowners who are underwater on their mortgages – where the value of their homes is now less than the original purchase price – and could be facing foreclosure.
Extending the Act now allows struggling homeowners to proceed with a short sale, loan modification or other qualified transaction where a lender agrees to cancel mortgage debt – without the canceled debt being considered taxable income. Had an extension not been approved, homeowners would have had to include canceled debt amounts as part of their taxable income.
For 2012, newly adoptive parents are eligible to claim a tax credit up to $12,650 per child (increases to $12,970 for 2013). The phase out range for 2012 is $189,710 to $229,710; for 2013, $194,580 to $234,580. It is the largest nonrefundable tax credit available to individuals. Those claiming the credit on their income taxes must file Form 8839 and include an adoption order or decree with their return. Documentation of other qualified adoption expenses may also be required.
To see a short video interview with Mark Luscombe discussing further details about tax changes for 2012 returns, please click here.
About CCH, a Wolters Kluwer business
CCH, a Wolters Kluwer business (CCHGroup.com) is a leading global provider of tax, accounting and audit information, software and services. Celebrating its 100th anniversary in 2013, CCH has served tax, accounting and business professionals since 1913. Among its market-leading solutions are the ProSystem fx® Suite, CCH Integrator™, CCH® IntelliConnect®, Accounting Research Manager® and the U.S. Master Tax Guide®. CCH is based in Riverwoods, Ill. Follow us on Twitter @CCHMediaHelp. Wolters Kluwer (www.wolterskluwer.com) is a market-leading global information services company. Wolters Kluwer is headquartered in Alphen aan den Rijn, the Netherlands. Its shares are quoted on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices.