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Retroactive Tax Changes from the Fiscal Cliff

Written by Eva Rosenberg on February 11, 2013 in Tax  |   No comments

We waited and waited all through 2012. Finally, after the calendar flipped over to 2013, our legislators agreed on tax legislation. Some of it gave us permanence in long-disputed areas. Other parts of the legislation are temporary—they work as stopgaps to allow taxpayers to function…

tax changes fiscal cliffWe waited and waited all through 2012. Finally, after the calendar flipped over to 2013, our legislators agreed on tax legislation. Some of it gave us permanence in long-disputed areas. Other parts of the legislation are temporary—they work as stopgaps to allow taxpayers to function for the next year or so.

Included in the legislation were some provisions, retroactive to January 1, 2012. That retroactive legislation, coming so very late, has held up electronic tax filing. The IRS and the tax software companies must re-tool their software to address these issues. Luckily, most tax software companies had already programmed two or three alternate versions of certain laws, so all they had to do was implement one of those options.

What 2012 tax changes affect you? Actually, there are only three major issues:

1. Sales tax deduction. Congress reinstated this tax deduction. This means that taxpayers who itemize (use Schedule A) may claim a deduction for either the amount they paid for state income taxes or sales taxes. Not both.

This is good news for folks in the nine states that do not have a state income tax at all. (Note: Several other states are considering moving away from income taxes and towards sales taxes.) This is also beneficial for seniors whose primary income is from Social Security or pensions, which may be exempt from state taxes.

Folks will be able to use the IRS state sales tax calculator that bases this deduction on their income and family size. Add to that the sales taxes on any major purchases, like vehicles or boats. Or, of course, you could save the receipts for every single purchase all year and add them up.

2. Alternative Minimum Tax (AMT). Congress made this a permanent fix, and it increased the income that triggers the AMT computation. For 2012, the amount of income exempt from AMT rises to:

$50,600 (instead of $33,750) for single and head of household persons (S and HOH)
$78,750 (instead of $45,000) for married couples filing jointly (MFJ)
$39,375 (instead of $22,500) for married couples filing separately (MFJ)

These amounts will be indexed and will rise each year, based on inflation. In fact, we already have the 2013 amounts: $80,750 (MFJ), $51,900 (S and HOH), and $40,375 (MFS).

3. Depreciation. The 50 percent bonus depreciation and $500,000 IRC §179 are extended through 2013. Although Congress already extended these through the end of 2012, the IRS is revising its Form 4562 for depreciation deductions. This is one of the things causing the delay in electronic filing.

Check out the entire list of forms that the IRS needs to correct.

This will be an interesting tax season, with lots of delays and problems. But here’s good news for folks doing your own tax returns: Many of the major online (and boxed) tax software companies are providing free answers to your tax questions. And of course, if you can’t get answers there, just ask TaxMama.

Eva Rosenberg, EA is the publisher of TaxMama.com , where your tax questions are answered. Eva is the author of several books and ebooks, including the new edition of Small Business Taxes Made Easy. Eva teaches a tax pro course at IRSExams.com and tax courses you might enjoy at http://www.cpelink.com/teamtaxmama.

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