2012 Tax Changes for Individuals

Tax Changes in 2012 for Individuals

There have been quite a number of changes that have taken place within the tax code for 2012. Most of these changes are beneficial to taxpayers. All the major 2012 tax changes for individuals will be listed below. These changes will come in handy when you file your tax return in 2013.

Form 1040 Reporting Changes

1. Using Form 8949

Previously, capital gains were reported on Schedule D-1 but the IRS is now requiring taxpayers to report all capital gains and losses on Form 8949. The subtotal that you calculate will then be transferred from Form 8949 to Schedule D on Form 1040.

When you look at Form 8949 you will find that there are three categories:

1. Transactions on Form 1099-B with basis reported to the IRS.
2. Transactions on Form 1099-B without basis reported to the IRS.
3. Any transactions that do not fall under the previous two categories.

You will also find on Form 8949 that there is more than one category for reporting different types of transactions. If you have more than one category of transactions to report, you must file more than one Form 8949. These categories include:

1. Non business bad debts.
2. A Capital asset was sold or exchanged and not reported on another form.
3. A Capital asset was involuntarily converted and there was a gain on the conversion.

To learn more about reporting capital gains on Form 8949 check out:

Eight Facts about New IRS Form 8949 and Schedule D
Tax Form 8949 – Instructions for Reporting Capital Gains & Losses

2. Self-employment health insurance deduction

It is also important to know that a change was made to how you must report self-employment health insurance deductions. These deductions are no longer acceptable on Schedule SE. You are still allowed to deduct them on the front page of Form 1040 but unfortunately they will not lower your self-employment tax obligation.

Deducting Interest on Education Loans

The maximum deduction you can take beginning in 2012 for interest on qualified education loans is $2,500. This deduction begins to phase out if you have a modified adjusted gross income of $60,000 or more and it is completely phased out at $75,000. If you file married filing jointly your deduction begins to phase out at $125,000 and is completely phased out at $155,000.

Health Related Tax Credit Eligibility

If you do not buy your health care from your employer or your spouse’s employer and you buy your health care through an exchange, you may be eligible for a premium assistance tax credit. Your household income must be between 100% and 400% of a poverty level set by the federal government.

To calculate your household income:

1. Calculate your modified adjusted gross income.
2. Add all other modified adjusted gross income for taxpayers living in your home that are required to file a tax return.

In November of 2011 President Obama changed the law and the definition of what constituted modified adjusted gross income.

To calculate your modified adjusted gross income:

1. Calculate your adjusted gross income.
2. Add any amount excluded by Code Sec. 911.
3. Add any tax exempt interest received or accrued for the year.
4. Add any social security benefits that were excluded from gross income.

If you add all of the four items listed above, you will then arrive at your modified adjusted gross income according to the 2011 revision for what defines modified adjusted gross income.

Foreign Earned Income Exclusion

The IRS has revised the amount of foreign earned income you can exclude upward from $92,900 in 2011 to $95,100 in 2012. This is a small change but one that can potential effect many taxpayers living abroad.

Remember that a US citizen or resident alien of the United States who lives in another country may be eligible to exclude income earned in a foreign country from taxation by the IRS.

If you are unsure of the specifics of who is eligible for this exclusion, make sure to contact a tax professional inside the United States that understands the rules and regulations pertaining to US citizens or resident aliens living abroad.

To learn more about the foreign earned income exclusion check out:

The Foreign Earned Income Exclusion
Foreign Earned Income Exclusion

Foreign Assets

Beginning in 2011 a taxpayer who holds foreign financial assets must report them using Form 8938 which is named “Statement of Specified Foreign Financial Assets”. This form is used for taxpayers that hold assets with a foreign financial institution. Usually these assets include stocks, bonds and other types of securities.

Traditional IRA contributions

For 2012, the IRS has increased the phase out limit of modified adjusted gross income pertaining to a traditional IRA through your employer. This means that you can now contribute to a Traditional IRA when in prior years your income would have been too high.

1. Married Filing Jointly or Qualified Widow

Your Traditional IRA contribution ability begins to phase out when your modified adjusted gross income reaches $92,000 and it is completed phased out at $112,000.

2. Single or Head of Household

Your Traditional IRA contribution ability begins to phase when your modified adjusted gross income reaches $58,000 and it is completed phased out at $68,000.

3. Married Filing Separately

Your traditional IRA contribution ability is completely phased out when your modified adjusted gross income reaches $10,000.

Roth IRA contributions

For 2012, the IRS has increased the phase out limit of modified adjusted gross income pertaining to a Roth IRA. This means that you can now contribute to a Roth IRA when in prior years your income would have been too high.

1. Married Filing Jointly or Qualified Widow

Your Roth IRA contribution ability begins to phase out when your modified adjusted gross income reaches $173,000 and it is completed phased out at $183,000.

2. Single, Head of Household or Married Filing Separately

Your Roth IRA contribution ability begins to phase out when your modified adjusted gross income reaches $110,000 and it is completed phased out at $125,000. In order to qualify as married filing separately, you must not have lived with your spouse at all during the year.

3. Married Filing separately

Your Roth IRA contribution ability is completely phased out when your modified adjusted gross income reaches $10,000. If you lived with your spouse at any time during the year, you cannot contribute to a Roth IRA if your modified adjusted gross income is above $0.

Tax Tables

Here is the updated version of the tax tables for 2012.

2012 Tax Tables

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

About Paul Gaulkin CPA

Paul Gaulkin is a Certified Public Accountant and enrolled with the U.S. Treasury to practice before the IRS. Mr. Gaulkin possesses unique technical knowledge in the process of securing relief for taxpayers nationwide with IRS and State tax problems. With an accounting degree from Florida International University, he is able to transform complex tax and accounting problems into easy to understand solutions.


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