Late on January 1, 2013, Congress passed HR 8 (Tax Relief Extension Act) which extended almost all of the Federal tax provisions that had expired at the end of 2011 and 2012.
Although the Tax Relief Extension Act contains many individual, business, and energy tax provisions that were extended or modified, the following are the ones that will have the most impact on taxpayers filing their 2012 Federal returns this coming filing season.
Alternative Minimum Tax (AMT)
The Alternative Minimum Tax (AMT) provisions were permanently extended as follows:
- The exemption amount will be indexed for inflation each year. For 2012 the exemption amounts are:
- Single/Head of Household: $58,600
- Married Filing Joint: $78,750
- Married Filing Separate: $39,375
- All personal nonrefundable credits may be used in calculating the AMT. This also means that the order these credits are taken against regular tax will remain as they currently are.
Individual and Business Provisions
The following individual and business provisions were extended and will apply to Tax Years 2012 and 2013:
- $250 Educator Expense Deduction – Form 1040, line 23
- Tuition and Fees Deduction – Form 8917 and Form 1040, line 34
- Itemized Deduction for Sales Tax – Schedule A, line 5
- Nonbusiness Energy Property Tax Credit reported on Form 5695, Part I
- 15 year straight line depreciation allowed for qualified leasehold restraint and retail improvements
- Tax-free distributions from IRAs for charitable purposes
- Contributions of capital gain real property made for conservation purposes (50% limitation applied instead of 30% limitation)
Section 179 Expense
The following Section 179 provisions were extended and will apply to tax years 2012 and 2013:
- Maximum deduction: $500,000
- Maximum cost before the limit is reduced: $2,000,000
- Qualified Real Property category which includes qualified leasehold improvements, qualified restaurant property and qualified retail improvement property which has a Section 179 expense limit of $250,000.
The portions of the Adoption credit that made it a refundable credit and increased the credit amount were not extended. Thus the adoption credit reverts back to being a nonrefundable credit with any excess being allowed to be carried forward for five years. The maximum credit for 2012 will be $12,650.
Federal Provisions That Were Not Extended
The following Federal provisions were not extended and thus are not applicable for 2012 Federal returns:
- 5 year depreciation for farming business machinery and equipment
- DC First-time homebuyers tax credit
December 17, 2012 – Small Businesses Cutting Benefits
The economy is throwing a wrench in the plans of plenty of small businesses. That’s causing many to take steps they wouldn’t normally consider. Among them: cutting the benefits packages they offer their employees.
A recent survey completed by insurance company Aflac shows that 62 percent of 510 decision-makers at U.S. small businesses said they find it more difficult than a year ago to offer strong employee benefit packages. As a result, those companies are looking for creative ways to cut their insurance costs.
Of those surveyed, 43 percent said they are more likely to cut back on employee benefits, while two-thirds said they are aggressively hunting for ways to lower their insurance costs.
Not surprisingly, companies whose revenues are declining are facing more pressure to cut benefits and insurance costs. The survey showed that 69 percent of companies whose revenue fell in the past year said they find it more challenging to offer strong benefits packages. Just 56 percent of firms whose sales stayed flat said offering a solid benefit package was more challenging.
The issue employers have to weigh is how much to cut without hurting their business’s long-term prospects.
“Employers are concerned about losing employees to competitors with better benefits packages, even while they may be struggling to reduce costs and make ends meet,” Paul Amos II, Aflac’s president and chief operating officer, said in a news release. “It’s a cost-benefit balancing act.”
Likewise, the amount of concern workers have about the possibility of their benefits being cut is on the rise. In a companion Aflac consumer survey, 52 percent of workers said they’re more concerned than they were a year ago about their out-of-pocket medical expenses. An illness or injury would be a greater concern now than it would have been a year ago for 56 percent of respondents.
As the economy takes its toll on companies, many feel compelled to consider modifying their employee benefits plans, including health insurance. But if they cut too much, it can have a major impact on their business. Employees can leave, making competitors stronger.
“Making sure that employees feel safe and secure about their health benefits can be a huge competitive advantage in today’s business world,” Amos said. “Studies have shown that benefits are one of the top retention drivers for workers, especially as costs escalate and service levels decline.”