(Part I of a Three-Part Series)
Welcome 2012! As the new year rolls around, it's always a sure bet that there will be changes to the current tax law and 2012 is no different. From health savings accounts to retirement contributions here's a checklist of tax changes to help you plan the year ahead.
Individuals
The current tax rate structure ranging from 10% to 35% remains the same for 2012, but tax-bracket thresholds increase for each filing status.
Standard deductions and the personal exemption have also been adjusted upward to reflect inflation. For details see Tax Brackets and Exemptions for 2012 below.
Alternate Minimum Tax (AMT)
Alternate Minimum Tax (AMT) limits decrease for all taxpayers at $33,750 for singles, $45,000 for married filing jointly, and $22,500 for married filing separately.
"Kiddie Tax"
For taxable years beginning in 2012, the amount that can be used to reduce the net unearned income reported on the child's return that is subject to the "kiddie tax," is $950. The same $950 amount is used to determine whether a parent may elect to include a child's gross income in the parent's gross income and to calculate the "kiddie tax". For example, one of the requirements for the parental election is that a child's gross income for 2012 must be more than $950 but less than $9,500.
For 2012, the net unearned income for a child under the age of 19 (or a full-time student under the age of 24) that is not subject to "kiddie tax" is $1,900, the same as 2011.
Health Savings Accounts (HSAs)
Contributions to a Health Savings Account (HSA) are used to pay current or future medical expenses of the account owner, his or her spouse, and any qualified dependent. Medical expenses must not be reimbursable by insurance or other sources and do not qualify for the medical expense deduction on a federal income tax return.
A qualified individual must be covered by a High Deductible Health Plan
(HDHP) and not be covered by other health insurance with the exception of insurance for accidents, disability, dental care, vision care, or long-term care.
For calendar year 2012, a qualifying HDHP must have a deductible of at least $1,200 for self-only coverage or $2,400 for family coverage (unchanged from 2011) and must limit annual out-of-pocket expenses of the beneficiary to $6,050 for self-only coverage (up $100 from 2011) and
$12,100 for family coverage (up $200 from 2011).
Medical Savings Accounts (MSAs)
There are two types of Medical Savings Accounts (MSAs), the Archer MSA created to help self-employed individuals and employees of certain small employers and the Medicare Advantage MSA, which is actually an Archer MSA as well, and is designated by Medicare to be used solely to pay the qualified medical expenses of the account holder. To be eligible for a Medicare Advantage MSA, you must be enrolled in Medicare and both MSAs require that you are enrolled in a high deductible health plan (HDHP).
Self-only coverage. For taxable years beginning in 2012, the term "high deductible health plan" means, for self-only coverage, a health plan that has an annual deductible that is not less than $2,100 (up $100 from
2011) and not more than $3,150 (up $150 from 2011), and under which the annual out-of-pocket expenses required to be paid (other than for
premiums) for covered benefits do not exceed $4,200 (up $150 from 2011).
Family coverage. For taxable years beginning in 2012, the term "high deductible health plan" means, for family coverage, a health plan that has an annual deductible that is not less than $4,200 (up $150 from
2011) and not more than $6,300 (up $250 form 2011), and under which the annual out-of-pocket expenses required to be paid (other than for
premiums) for covered benefits do not exceed $7,650 (up $250 from 2011).
Eligible Long-Term Care Premiums
Premiums for long-term care are treated the same as health care premiums and are deductible on your taxes subject to certain limitations. For individuals age 40 or less at the end of 2012, the limitation is $350.
Persons over 40 but less than 50 can deduct $660. Those over age 50 but not more than 60 can deduct $1,310, while individuals over age 60 but younger than 70 can deduct $3,500. The maximum deduction $4,370 and applies to anyone over the age of 70.
Adoption Assistance Programs
For taxable years beginning in 2012, the amount that can be excluded from an employee's gross income for the adoption of a child with special needs is $12,650. In addition, the maximum amount that can be excluded from an employee's gross income for the amounts paid or expenses incurred by an employer for qualified adoption expenses furnished pursuant to an adoption assistance program for other adoptions by the employee is $12,650 (down from $13,360 in 2011).
The amount excludable from an employee's gross income begins to phase out under for taxpayers with modified adjusted gross income (MAGI) in excess of $189,710 and is completely phased out for taxpayers with modified adjusted gross income of $229,710 or more.
Taxpayers adopting children are eligible for both the adoption credit (see below) and the adoption assistance exclusion of adoption expenses paid for through an employer's adoption assistance plan. However, the same adoption expense cannot qualify for both the adoption credit and the adoption assistance exclusion.
Foreign Earned Income Exclusion
For taxable years beginning in 2012, the foreign earned income exclusion amount is $95,100, up from $92,900 in 2011.
Estate Tax
For an estate of any decedent dying during calendar year 2012, the basic exclusion amount is $5,120,000, up from $5,000,000 in 2011. Also, if the executor chooses to use the special use valuation method for qualified real property, the aggregate decrease in the value of the property resulting from the choice cannot exceed $1,040,000, up from $1,020,000 for 2011. The maximum tax rate remains at 35%.
While this checklist outlines important tax changes already in place for 2012, additional changes in tax law are more than likely to arise during the year ahead.
Don't hesitate to call us if you want to get an early start on tax planning for 2012. We're here to help!
Watch for Part 2 of this three part series
Last week, I informed you of the national recognition that one of our partners, Bill Pirolli, received as a result of his numerous contributions to our professions.
John J Brough, Jr. is a member of the AICPA's Forensics & Litigation Services (FLS) Committee. John is one of only fourteen forensic and litigation experts across the country serving as a member of the Committee. The FLS Committee provides professional guidance to CPA practitioners who perform forensic accounting investigations and determine economic damages. The Forensic and Valuation Services Center is designed to provide CPAs with a vast array of resources, tools and information on Business Valuation and Forensic and Litigation Services (BV / FLS). The FLS Committee develops, promotes and creates demand for developing emerging forensic accounting services by raising the level of awareness of a CPA's role in this area for lawyers and other service professionals. 
Leah J. Szlatenyi is one of only twelve valuation experts across the country serving as a member of the AICPA's Business Valuation Committee. Her appointment affords her the opportunity to represent all CPAs and business valuation practitioners located in the New England and Mid-Atlantic states. Leah also serves on the RISCPA Business Valuation Committee.