Expiring December 2012
- The Bush era tax cuts included an expanded 15% tax bracket for married filers to avoid the 'marriage penalty'. That expansion of the 15% tax bracket expires on 12/31/2012.
- Again, the Bush era tax cuts increased the IRS allowed standard deduction for married couples. This expanded standard deduction expires on 12/31/2012. This decreased deduction will bring back another part of the 'marriage penalty' for those who are married filing jointly.
- The advantage of paying a reduced tax rate on long-term capital gains (0% and 15%) expires on 12/31/2012. Generally, the 0% rate will be eliminated (for those in the 10% and 15% tax brackets) and 15% rate (for those in the 25% and higher tax brackets) will increase to 20% for all non-corporate taxpayers. Capital gains include items like raised breeding stock and the gain on the sale of real estate. If either of these is a part of your operation, you can expect to generally see an increased tax rate on these items. If you have the option and if it fits your tax plan, consider advancing the sale of assets with a capital gain into 2012.
- The bottom tax bracket (10%) is eliminated. If one has an adjusted gross income that exceeds the top of the expiring 10% tax bracket ($17,400 for 2012), an additional $870 of tax liability is generated. ($17,400 x 5%).
- The tax brackets over $70,700 which are taxed at the rates of 25%, 28%, 33% and 35% are increased to the rates of 28%, 31%, 36% and 39.6% respectively.
- The IRS Code Section 179 Expense Election of $139,000 with a $560,000 purchase limit expires on 12/31/2012. (This decreases to $25,000 with a $200,000 purchase limit for 2013.)
- The Special Depreciation Allowance (Bonus Depreciation) equal to 50% of the depreciable basis expires on 12/31/2012. (There are no provisions for Bonus Depreciation in 2013.)
- The temporary payroll tax cut that was extended for the 2012 tax year will also end on December 31, 2012. This cut reduced the amount of the self-employment tax as well as the employee portion of the payroll tax by 2 percent for 2012.
Circular 230 Disclaimer: To comply with IRS requirements, please be advised that, unless otherwise stated by the authors, any tax advice contained in this article is not intended or written to be used, and cannot be used, by the recipient to avoid any federal tax penalty that may be imposed on the recipient, or to promote, market or recommend to another any referenced entity, investment plan or arrangement.