2012 Tax Planning for Expiring Tax Provisions
Alternative Minimum Tax Could Affect You
The Alternative Minimum Tax (AMT) was originally intended to prevent wealthy individuals from reducing their tax bill too much. The AMT removes a wealthy taxpayer's ability to claim many deductions and then imposes a tax rate of either 26 percent or 28 percent. The taxpayer pays the higher of his normal tax or the AMT. An exemption was put in place prevent lower-income taxpayers from being subject to the AMT, however, this exemption has not been adjusted to keep up with inflation. The result: many middle class tax payers are now subject to the AMT. If Congress does not take action to adjust the exemption, even more taxpayers will be affected in 2012.
Payroll Taxes Will Go Up
The payroll tax break, initially put in play in 2011 and extended earlier this year, is set to expire at the end of 2012. This means employee payroll taxes will increase to 6.2 percent (up from the current rate of 4.2 percent) without additional congressional action.
Bonus Depreciation of Equipment Will End
New equipment purchased during 2012 is eligible for 50 percent bonus depreciation. This means that you can deduct half the cost of the purchase right away. The remaining half of the cost is then depreciated as normal. For equipment to qualify for 50 percent bonus depreciation it must be acquired and placed in service before January 1, 2013. If you are thinking about expanding your business by purchasing new equipment, consider buying before the end of the year to take advantage of this tax break.
Mon, August 13, 2012