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AMT relief, child tax credit, and more.

The American Taxpayer Relief Act of 2012 is far ranging, with many other provisions that might affect taxpayers. They include the following:

* Alternative minimum tax (AMT) exemption. For years, Congress has increased the AMT exemption amount with a series of "patches." Without these increases, the exemption would have been lower and more taxpayers would owe the AMT.

The new law sets the exemption amounts for 2012 at $78,750 for married couples filing joint returns and surviving spouses; at $39,375 for married taxpayers filing separately; and at $50,600 for individuals who are not married. In 2013, those amounts are $80,800, $40,400, and $51,900, respectively, and in subsequent years, they will increase with inflation.

* Child tax credit. This credit, which was due to fall to $500 in 2013, is now permanently set at $1,000. That $1,000 tax credit is per child under age 17. Income limits may prevent some parents from receiving some or all of this credit.

* Equality for couples. The new law maintains the rules aimed at eliminating the "marriage penalty."

For example, the standard deduction for a single taxpayer in 2013 is $6,100; the new law assures that the standard deduction for married couples filing jointly will be twice as high: $12,200. If the new law had not passed, the standard deduction for couples would have been only $10,150.

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Similarly, the 15% tax bracket for single taxpayers goes up to $36,250 of taxable income, and the new law will mean that bracket goes up to $72,500 for married couples filing jointly. Before the new law extended marriage penalty protection, couples would have moved from the 15% bracket to the 25% bracket with only $60,550 of taxable income.

* Sales tax deduction. People who itemize deductions on Schedule A of Form 1040 can deduct state and local income taxes paid. In recent years, itemizers have had the option of deducting state and local sales taxes paid, rather than state and local income taxes. The new law extends this option through 2013, providing an especially valuable benefit to residents of states with no income tax.

* IRA charitable contributions. Generally, taxpayers owe tax if they use IRA money for charitable donations, because IRA distributions must be included in income. In recent years, though, taxpayers 70XA or older have been able to make direct distributions from their IRAs of up to $100,000 to charity without including the distributions in income. The taxpayers didn't get a charitable contribution tax deduction, but they avoided increasing their adjusted gross income (AGI) by the amount of the distributions and the distributions were treated as part of their required minimum distributions.

The new law restores this tax benefit for 2012 and for 2013. An IRA owner can treat a contribution made to a qualified charity in January 2013 as a 2012 qualified charitable distribution, in many cases.

* American Opportunity Tax Credit. Ever since Congress replaced the Hope Scholarship tax credit with the more valuable AOTC in 2009, the AOTC has been a prime tax break. The new law extends the AOTC through 2017.

Under the AOTC, taxpayers may cut their tax bill by as much as $2,500 per student. To get the maximum credit, you must spend at least $4,000 per student in the relevant calendar year. You can count money spent for students in their first four years of post-high school education. The money you pay for tuition and related fees counts for calculating the tax credit, along with outlays for necessary books, supplies, and equipment but room and board costs don't count. Income limits prevent some taxpayers from claiming the AOTC.

Taxpayers who are not able to claim the AOTC may qualify for the deduction for qualified tuition and related expenses. That deduction, which may be as much as $4,000, although it expired after 2011, is now extended retroactively to 2012 and through 2013 as well. Also included in the new law are continued easing of the tax deduction for interest on student loans and maintenance of the $2,000 limit for annual contributions to Coverdell Education Savings Accounts.
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Publication:CPA Client Bulletin
Date:Apr 1, 2013
Words:692
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