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2012 Personal Tax Guide

Contact: Marie Arrigo

January 12, 2012

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EisnerAmper 2012 Personal Tax Guide & Tax PlanningOn December 17, 2010, The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 was enacted. This sweeping legislation extended the Bush tax cuts that were scheduled to expire at the end of 2011 for two more years. Several expiring tax credits and other favorable initiatives were also extended for two years. A patch for the alternative minimum tax was enacted in order to prevent millions of people from becoming subject to that additional tax. The 50% bonus depreciation allowance was boosted to 100% for qualified investments made on or after September 9, 2010 and on or before December 31, 2011. The 50% bonus depreciation is allowed for qualified investments made in 2012. There are major changes in the estate tax, including a maximum estate tax rate of 35 percent, an applicable exclusion amount of $5 million ($10 million for married couples), and a new “portability” provision (which will help married couples maximize the benefit of the exclusion amount), for decedents dying on or after January 1, 2011 and on or before December 31, 2012.

Thus far, 2011 has been a year of proposals, but no significant tax law changes.

In February 2011, President Obama released his budget for the fiscal year 2012 in which many of his earlier policies were repeated, such as (1) ending the Bush-era tax cuts for higher income individuals; (2) making permanent the American Opportunity Tax Credit; (3) eliminating some energy tax incentives and (4) reforming international tax provisions. Overall, President Obama proposed $3.73 trillion in federal spending and $1.1 trillion in deficit reductions. The President’s fiscal year 2012 budget faced Congressional hearings and many of his proposals were challenged by the GOP-controlled House. As of this writing, none of these proposals have been enacted.

On August 2, 2011, President Obama quickly signed the Budget Control Act after passage by the Senate (74 to 26). The House had passed the Act on August 1, 2011 by a vote of 269 to 161. The new law raised the debt limit to avoid a projected August 2 default and created a bipartisan Joint Select Committee on Deficit Reduction, otherwise known as the “Super Committee.” This committee, consisted of six Republicans and six Democrats, and was charged with the mandate of drafting additional deficit reduction legislation in time to be voted on by Congress before the end of 2011. The amount of the deficit reduction had to be at least $1.5 trillion over ten years. If the Super Committee did not agree on legislative language or if Congress did not pass their proposal, then automatic spending cuts across the board would apply commencing in 2013. This action led to the downgrading of the United States of America S&P credit rating for the first time ever—from a AAA rating to a AA rating. On November 21, 2011, the Super Committee announced that it could not agree on a proposal.

In September 2011, President Obama proposed the “American Jobs Act,” which was a $447 billion legislation that would increase the temporary 2% payroll tax cut to 3.1% for 2012 and expand it to the employer share of the first $5 million in wages. The Act also proposed the elimination of the 6.2% employer share of payroll taxes to the extent that firms increase their payroll by hiring new workers or increasing the wages of current workers, capped at $50 million in payroll increases. In addition, a new tax credit of $4,000 was proposed for employers who hired long-term unemployed workers, with increased credits allowed for unemployed veterans. The proposal also would extend for one year the 100% bonus depreciation allowance that is currently effective for 2011. The revenue offsets would come from closing loopholes for oil companies, raising the taxes of affluent corporations and individuals, and making changes for partners providing investment management services to general partnerships. Under current law, these service partners treated most of their distributions from the partnership as long-term capital gains, taxed only at 15% at the federal level. The proposal would provide that the so-called “carried interest” be taxed at the higher ordinary income tax rates and also be subject to the self-employment tax. This proposal has also not been enacted as of the date of this writing.

On September 19, 2011, President Obama unveiled a $3 trillion federal Budget Deficit Reduction Plan including $1.5 trillion in tax increases. This plan made good on the President’s pledge to produce a balanced deficit reduction plan and outlined five principles of tax reform: (1) a call for comprehensive tax reform for individuals and corporations with lower tax rates, the removal of inefficient and unfair tax breaks and reform of the Internal Revenue Code; (2) a tax structure commencing in 2013 that ends the Bush-era tax cuts for higher income individuals, as well as introducing the so-called “Buffet Rule” (Warren Buffet had stated that his tax bracket should not be lower than his secretary’s tax rate); (3) incorporation of the provisions in the American Jobs Act, as proposed previously; (4) incorporation of the targeted business-directed loophole closures as proposed previously; and (5) a handful of tax-related measures that fit within President Obama’s Deficit Reduction Plan calling for mandatory health care savings and other government programs. The President’s plan focused on reform in the oil and gas industries, international tax reform and tax hikes for wealthy individuals.

Because the Super Committee had failed to come up with a plan, the automatic cuts will go into effect January 1, 2013 with the Department of Defense to be cut by $550 billion. The President urged Congress to continue to work toward passing cuts, and he indicated that he would veto any bill that would reduce the automatic cuts.

And finally, market conditions have been in turmoil due to certain European countries (Portugal, Italy, Ireland, Greece and Spain) having difficulty coping with the debt resulting from years of deficit spending. While the economy was robust, the problem had been masked. In recent years, the burden of sovereign debt bonds issued by governments has become increasingly unsustainable. With debt at roughly 140% of its gross domestic product, Greece is particularly troubled. Imposing austerity measures required by its European colleagues has added to the country’s recessionary woes. This has made it more difficult to achieve mandated deficit reduction targets in order to qualify for additional installments of financial aid from the European Financial Stability Facility set up last year by the seventeen Eurozone countries. And what happens in Europe affects the United States’ economy as well as the world’s economic stage.

We are also therefore living in a world with much uncertainty and turmoil. Now, more than ever, it is essential to pay attention to your financial position; to ensure that you are doing what you can to mitigate your income, estate and gift tax liabilities; and plan for your financial goals, such as college savings for your children, retirement planning, cash flow needs, and transfer of assets to future generations.

We have written this guide to provide you with a tool to identify opportunities to save taxes, accomplish your financial goals, and preserve your family’s wealth. The guide includes all major tax law changes through December 19, 2011. The best way to use this guide is to identify areas that may be germane to your situation and then discuss the matter with your tax advisor. As always, our tax professionals will be pleased to discuss any of the ideas in this guide, or any other tax planning approaches that might apply to your personal financial situation.

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Marie Arrigo, MBA, CPA
EisnerAmper LLP

 Marie_Arrigo 

  2012 Personal Tax Guide  complete download  [Adobe PDF file]
E-Book version for Barnes & Noble Nook  complete download  [.ePub file]
E-Book version for Amazon Kindle  complete download  [.mobi file] 
chapter   Table of Contents– download by chapter 
1  Tax Planning Goals  
2  Tax Rate Overview  
3  Estimated Tax Requirements  
4  Alternative Minimum Tax  
5  Business Owner Issues and Depreciation Deductions  
6  Capital Gains and Dividend Income  
7  Stock Options, Restricted Stock and Deferred Compensation  
8  Small Business Stock  
9  Passive and Real Estate Activities  
10  Principal Residence Sale and Rental  
11  Charitable Contributions  
12  Interest Expense  
13  Retirement Plans  
14  Estate and Gift Tax Planning  
15  Tax Credits  
16  Education Incentives  
17  International Tax Issues and Reporting Requirements  
18  State Tax Issues  
     
Appendices     
Appendix A  2012 Federal Tax Calendar  
Appendix B  2011 Federal Tax Rate Schedules  
Appendix C  2011 Maximum Effective Tax Rates  
Appendix D  EisnerAmper Tax Partners and Principals  


Editor-in-Chief
Marie Arrigo

Co-Editors
 Jerry Cohen;David Blivaiss; Jeff Chazen;Tom Hall

Contributors
June Albert, Peter Alwardt, Stephen Bercovitch, Gary Bingel, David Blivaiss, Angela Chen, Aninda Dhar, Denise DeLisser, Carolyn Dolci, Susan Fludgate, John Genz, Ira Gerlin, Mary Ho, Jennifer Hummel, Jean Jiang, Bo Kearney, Seth Komitzky, Cindy Lai, Richard Lichtig, Brent Lipschultz, Peter Michaelson, Joel Steinberg, Sandy Stolar, Barbara Taibi, Matthew Tse, Cristina Wolff, Jon Zefi


This tax guide highlights tax planning ideas that may help you minimize your tax liability.

This guide does not constitute accounting, tax or legal advice, nor is it intended to convey a thorough treatment of the subject matter. The best way to use this guide is to identify those issues which could impact you, your family, or your business and then discuss them with your tax advisor.

The discussion in this guide is based on the Internal Revenue Code as amended through December 19, 2011. Future legislation, administrative interpretations, and judicial decisions may change the advisability of any course of action. Because of periodic legislation changes, you should always check with your tax advisor before implementing any tax planning ideas.

Any information contained in this guide is not intended or written to be used, and cannot be used, for the purpose of (a) avoiding or reducing penalties that may be imposed by the Internal Revenue Service or any other government authority, or (b) promoting, marketing or recommending to another party any transaction or matter addressed herein.

EisnerAmper is a member firm of the PKF International Limited network of legally independent firms and does not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm or firms.

Copyright by EisnerAmper LLP. All rights reserved. This book, or portions thereof, may not be reproduced in any form without permission of EisnerAmper LLP.

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