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Highlights of 2012 Tax
Bush tax provisions still effective: (1) 10% tax bracket for individuals and the other tax brackets to 25%, 28%, 33%, and 35%; (2) The 15% tax rate for capital gains (0% for taxpayers in the 10% and 15% tax brackets)

Itemized deduction and personal exemption limitation: No limitations for 2012 (final year).

Alternative Minimum Tax exemption: $50,600 for unmarried individuals and $78,750 for married individuals filing jointly.

Social Security tax and self-employment tax: The 2012 tax rate for the employee share of Social Security is 4.2%, reduced by 2%.  Reflecting this, the self-employment tax rate is 13.3%, 2% less.

American Taxpayer Relief Act extends popular provisions:
Deduction for state and local taxes, in lieu of state income taxes
$250 above-the-line deduction for teachers
Mortgage insurance premiums as residence interest
Above-the-line deduction for qualified tuition/fees
Tax-free distributions from IRA to charity
$500,000 of Sec. 179 first-year expensing limit
15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements
Exclusion from gross income of discharge of qualified principal residence indebtedness (Sec. 108)
Credit for energy-efficient existing homes (Sec. 25C)
Credit for alternative fuel vehicle (Sec. 30C)

American Opportunity Tax Credit : The credit is now effective for five more years, through 2017.

Foreign earned income exclusion: $95,100 for 2012.

Schedule D and New Form 8949: Form 8949 must be used for reporting 2011 sales of capital assets, such as stock, and attach to Schedule D. 

Brokerage Form 1099 due is Feb 15: Your brokerage company will issue Form 1099 by February 15.  Broker reporting of cost basis in 1099-B includes sales of mutual fund shares acquired after 2011.  In case you received a revised/corrected 1099 statement, please immediately provide the new information to us.  For capital gain calculation, please obtain Gain/Loss statement, if not included in your 1099.

Form 1099-K: Payment settlement entities are required to report in Form 1099-K (1) all payments made in payment card transactions; (2) third-party network transactions of more than 200 transactions and $20,000 gross income paid to them.  The seller will receive 2012 Form 1099-K by January 31.

Statement K-1 of Publicly Traded Partnership:Invested in a publicly traded partnership but don’t know where is your K-1?  You can find it online at

Bonus depreciation: 50% of the cost of business property acquired in 2012.

Standard mileage rates:

55.5 cents per mile for business;
23.0 cents per mile for medical and moving; and
14.0 cents per mile for charitable volunteers.

Vehicle depreciation limits: Max depreciation for a car placed in service in 2012 is $11,160, if bonus depreciation applies; otherwise $3,160. For a light truck and van, $11,360 and $3,360, respectively.

Annual exclusion for gifts: Per-donee exclusion for gifts of present interests is $13,000.  ($14,000 for 2013)

Dependent Care Credit: Depending on your income, a credit percentage of 20% to 35% applies to 2012 qualified expenses up to $3,000 (one dependent) or $6,000 (two or more dependents).  The limit must be reduced by employer reimbursement.

Earned income tax credit due diligence:
IRS regulation requires paid tax-return preparers to file a due diligence checklist (Form 8867) with any federal tax return claiming EITC.  Part of 2012 rule is stricter than 2011.

Small business health tax credit: Employers that pay at least 50% of the health insurance premiums for their employees in 2012 may be able to claim 35% credit, but complex eligibility rules apply.

Foreign Account Reporting Requirements:
Form TD F 90-22.1  Each US person who has a financial interest in or signature authority over any foreign bank and financial accounts that exceed $10,000 in aggregate value in any time during the calendar year must report to Dept of Treasury by June 30 of the succeeding year.  This form is not filed with your tax return; you may e-file this form.

Form 8938 must be filed with your tax return if you hold any interest in a specified foreign financial asset and the aggregate value of all those assets exceeds $50,000.  Be careful: penalty on non-filing is at least $10,000.    
All Charitable Contributions require evidence: IRS is very strict with substantiation requirement for charitable contribution deduction. IRS disallows deductions for any contribution of $250 or more unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgement of the contribution by the donee organization. Make sure you keep receipts, acknowledgment letter, etc. For this reason, if you would like to make cash contribution, write a check.

Recordkeeping: Keeping well-organized tax record is strongly recommended.  Especially, many taxpayers tend to forget keeping business mileage logs if used their cars for business, required by IRS.

Tax Season Starts January 30, 2013: IRS starts to process tax returns on Jan. 30, reflecting the latest tax law changes enacted on Jan. 2 as American Taxpayer Relief Act.

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