5 Tax Trends That Could Cost You in 2012
BOSTON ( MainStreet) -- As millions of Americans sit down to crunch out this year's tax forms, they may want to start thinking about 2013.
"Uncertainty" is the best way to describe 2012's tax environment due to changing rules, deficit debates and election-year posturing.
|Political battles and a grab for more government revenue make 2012 an uncertain year for taxpayers.|
We took a look at five trends that may have a big impact on the government's bite in the months ahead:
Your 2012 taxes could benefit from what is usually a painful force of economics. There may actually be an upside to inflation.
By law, "the dollar amounts for a variety of tax provisions, affecting virtually every taxpayer, must be revised each year to keep pace with inflation," according to the IRS .
The formula used in indexing showed a relatively higher amount of inflation this year over last, just over 3.8%, according to CCH, a Wolters Kluwer business and provider of tax information, software and services. This increase is well above the 1.4% amount used last year and the 0.18% inflation factor used in 2010.
"Most taxpayers benefit from inflation adjustments, since they tend to preserve the value of most, but not all, of the dollar-based benefits under the tax code year after year," says George Jones, a CCH senior federal tax analyst.
The value of each personal and dependent exemption, available to most taxpayers, is $3,800, up $100 from 2011, according to the IRS.
The new standard deduction is $11,900 for married couples filing a joint return, up $300; $5,950 for singles and married individuals filing separately, up $150; and $8,700 for heads of household, up $200. Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions such as mortgage interest, charitable contributions and state and local taxes, the IRS says.
When there is inflation, indexing of brackets lowers tax bills by including more of people's incomes in a lower bracket, an analysis by CCH explains.
Tax-bracket thresholds will increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15% bracket from the 25% bracket is $70,700, up from $69,000 in 2011.
CCH says to expect slightly higher standard deduction and personal exemption amounts for 2012 in most cases, as well as amounts that might be claimed from an increase in the income ceilings imposed on tax benefits such as education credits, individual retirement account contributions and more.
"Combined, inflation-based tax savings for 2012 can become substantial," the CCH analysis says. "Because of inflation adjustments, a married couple filing jointly with a total taxable income of $100,000 should pay $190 less income taxes in 2012 than they will on the same income for 2011 because of indexing of their tax bracket for 2012. A single filer with taxable income of $50,000 should owe $95 less next year due to the adjustments to the income tax rate brackets between 2011 and 2012."