New for 2012

1. TAX LAW UPDATE FOR TAX YEAR 2010Volunteer Income Tax Preparation January 2012ACCT 4210Judith Stilz OgdenClayton State University/ http://business.clayton.edu/jogden/default.html judithogden@clayton.edu

2. New for 2012 • RESOURCES • Each Training Module in Link and Learn has: What’s New This Year. It is 2011 information. • TaxWise has many resources • Pub 17 http://www.irs.gov/publications/p17/index.html (2011) Also available through TaxWise.

3. Using RIA Checkpoint On Campus • Go to the library: http://www.clayton.edu/library/home • Find Articles: http://www.clayton.edu/library/findarticles • Choose Galileo http://www.galileo.usg.edu/scholar/clayton/subjects/?Welcome • Choose Databases: http://www.galileo.usg.edu/scholar/clayton/databases/ • Type in “RIA.” • Select “RIA Checkpoint.” • Start with a search in the Federal Tax Coordinator. The discussion will lead you to code sites, regulations, and cases.

4. LexisNexisAcademic • You can also use LexisNexis on or off campus. • You can also find it through Galileo. • If you are off campus, you must use the secret password, “wool,” or your 9 digit Laker ID number.

5. Investment Income for Certain Children (Kiddie Tax) • Investment Income for Certain Children • The amount of taxable investment income a child can have without it being subject to tax at the parent's rate remains at $1,900 for 2011 and 2012.

6. Exclusion for Discharged Home Mortgage Debt Extended • The 2012 Taxpayer Relief Act extends this exclusion for one year so that it applies to home mortgage debt discharged before 2014. • Discharge of indebtedness income from qualified principal residence debt, up to a $2 million limit ($1 million for married individuals filing separately) is excluded from gross income.

7. Standard Deduction for 2012 • Married Filing Jointly or Qualifying Widow(er) - $11,900 • Head of Household - $8,700 • Single or Married Filing Separately - $5,950

8. Standard Deduction for Taxpayers who are 65 and Older or are Blind • $1,150 - Married Filing Jointly, Married Filing Separately, or Qualifying Widow(er) • $1,450 - Single or Head of Household • Same as 2011.

9. Individual who can be claimed as a dependent on another's return • The basic standard deduction for 2012 will be $950 (same as for 2011), or $300 (same as for 2011) plus the individual's earned income, whichever is greater. However, the standard deduction may not exceed the regular standard deduction for that individual.

10. Exemptions • The amount a taxpayer can deduct for each exemption increased to $3,800 for 2012.

11. Education Savings Bond Interest Exclusion • For 2012, the amount of the interest exclusion is phased out for Married Filing Jointly taxpayers or Qualifying Widow(er) taxpayers whose modified AGI is above $109,250. • Married taxpayers who file separately do not qualify for the exclusion. • For Single and Head of Household filing statuses, the interest exclusion begins to phase out for taxpayers whose modified AGI is over$72,850.

12. Refundable child credit • For 2012, the child credit is refundable to the extent of the greater of: • ... 15% of earned income above $3,000 (same as for 2011), or ... for taxpayers with three or more qualifying children, the excess of the taxpayer's social security taxes for the tax year over his earned income tax credit for the year. (Code Sec. 24(d))

13. EDUCATION CREDITS • For 2012, the Hope Scholarship Credit under Code Sec. 25A(b)(1), as increased under Code Sec. 25A(i) (the American Opportunity Tax Credit), is an amount equal to 100% of qualified tuition and related expenses not in excess of $2,000 plus 25% of those expenses in excess of $2,000, but not in excess of $4,000 (same as for 2011). Accordingly, the maximum Hope Scholarship Credit for tax year 2012 is $2,500 (same as for 2011).

14. A taxpayer's MAGI in excess of $80,000 ($160,000 for a joint return) • …is used to determine the reduction under Code Sec. 25A(d)(2) in the amount of the Hope Scholarship Credit otherwise allowable under Code Sec. 25A(a)(1) (same as for 2011).

15. A taxpayer's MAGI in excess of $52,000 ($104,000 for a joint return) • …is used to determine the reduction under Code Sec. 25A(d)(2) in the amount of the Lifetime Learning Credit otherwise allowable under Code Sec. 25A(a)(2) (up from $51,000 and $102,000 for 2011).

16. STUDENT LOAN INTEREST • For 2012, the deduction phases out ratably for taxpayers other than joint filers with MAGI between $60,000 and $75,000 ($125,000 and $155,000 for joint filers), same as for 2011.

17. Increase in Excludible Employer-Provided Mass Transit and Parking Benefits Reinstated and Extended • The 2012 Taxpayer Relief Act retroactively extends this increase in the monthly exclusion for employer-provided transit and vanpool benefits, so that the exclusion for employer-provided transit and vanpool benefits is equal to that of the exclusion for employer-provided parking benefits, through 2013.(Code Sec. 132(f)(2),

18. Treatment of Mortgage Insurance Premiums as Deductible Qualified Residence Interest Reinstated and Extended • The 2012 Taxpayer Relief Act retroactively extends this provision for two years so that a taxpayer can deduct, as qualified residence interest, mortgage insurance premiums paid or accrued before Jan. 1, 2014. (Code Sec. 163(h)(3)(E),

19. State and Local Sales Tax Deduction Reinstated and Extended • The 2012 Taxpayer Relief Act retroactively extends this provision for two years so that itemizers can elect to deduct state and local sales and use taxes instead of state and local income taxes for tax years beginning before Jan. 1, 2014. (Code Sec. 164(b)(5)(I),

20. Above-the-Line Deduction for Higher Education Expenses Reinstated and Extended • The 2012 Taxpayer Relief Act retroactively extends the qualified tuition deduction for two years so that it can be claimed for tax years beginning before Jan. 1, 2014. (Code Sec. 222(e)

21. Adoption Credit or Exclusion • The maximum adoption credit or exclusion for employer-provided adoptionbenefits is limited to $12,650 for 2012 (down from $13,360 for 2011 due to a law change).

22. Wage Threshold for Household Employees • The social security and Medicare wage threshold for household employees is $1,800 for 2012 and 2013. • This means that taxpayers who paid a household employee cash wages of less than $1,800 do not have to report and pay social security and Medicare taxes on that employee's wages.

23. Above-the-line Deduction for Educator Expenses • Elementary and secondary school teachers may claim an above-the-line deduction for up to $250 per year of expenses paid or incurred for books, certain supplies, computer and other equipment, and supplementary materials used in class. • The deduction applies to 2012 and 2013.

24. Earned Income Tax Credit • Earned income tax credit. In 2012, the maximum amount of earned income on which the earned income tax credit will be computed is $6,210 for taxpayers with no qualifying children, $9,320 for taxpayers with one qualifying child, and $13,090 for taxpayers with two or more qualifying children. • In 2012, the phaseout of the allowable earned income tax credit will begin at $12,980 for joint filers with no qualifying children ($7,770 for others with no qualifying children), and at $22,300 for joint filers with one or more qualifying children ($17,090 for others with one or more qualifying children). • Taxpayers must use IRS tables to determine the amount of their earned income tax credit. While these tables are based on the inflation adjusted figures set out above, because the credit under the tables is the same for everyone within a $50 range, there may be slight differences between the credit under the tables and the credit the taxpayer would determine using those inflation-adjusted figures. The amount of disqualified income (generally investment income) a taxpayer may have before losing the entire earned income tax credit will be $3,200 for 2012 (up from $3,150 for 2011).