Filing taxes? What you need to know.
Congress's last-minute 'fiscal cliff' deal extended many popular credits and deductions and permanently patched the Alternative Minimum Tax -- all good news if you're filing 2012 taxes.
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Be aware, however. Many deductions and credits phase out at higher incomes.Skip to next paragraph
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Dozens of credits and deductions that affect 2012 taxes had been due to expire at the end of 2011, but were extended as part of the legislation that restored the Bush-era tax cuts for most taxpayers.
The measure breathed new life into deductions for state and local sales taxes and an array of education-related credits and deductions. Not to mention the lack of an AMT patch.
"There was broad bipartisan agreement it had to be fixed," Steber said.
Originally set up to make sure millionaires were paying taxes, the AMT was ensnaring increasing numbers of middle-class taxpayers. To avoid that, the tax has been adjusted for inflation every year, but the last patch expired at the end of 2011. Without a new one, Miller said in a letter to Congress last fall, about 33 million taxpayers would have to pay the AMT in 2012, up from about 4 million in 2011.
Congress, as part of the fiscal cliff bill, passed a permanent fix for the AMT. Going forward, it will be indexed according to inflation.
For 2012, the AMT exemption is $50,600 for unmarried individuals and $78,750 for joint filers.
"It's just not that they passed the threshold amount and indexed it for inflation," said Kathy Pickering, executive director of H&R Block's Tax institute. "The other nugget in there is that the nonrefundable credits are allowed."
That means filers subject to the AMT may still be able to use these credits, as long as their income doesn't exceed the phaseout limits.
The fiscal cliff bill signed by Obama also extends the $1,000 per child tax credit, the expanded earned income tax credit and the credit for adopting a child.
Several education-related credits and deductions also were extended in the legislation.
The American Opportunity Tax Credit can be worth up to $2,500 for college tuition. The credit, which can be claimed for each of the first four years of college, was extended through 2017. Elementary and secondary school teachers will still be able to deduct up to $250 of their out-of-pocket expenses for the classroom.
And taxpayers will have the choice of deducting state and local sales taxes instead of state and local income taxes. This is especially important to residents of states like Florida, which doesn't have an income tax.
Knowing what tax credits and benefits you're eligible for is key. No one wants to pay more than is required in taxes.
"You certainly want to understand the tax law," Steber said. "Look to life changes" like retirement, losing a job, getting married, having a child or an elderly parent moving in as events that can affect your taxes.
For people in the Northeast, Superstorm Sandy certainly was a life-changing event. State officials have estimated the total damage at more than $80 billion, most of it in New York, New Jersey and Connecticut.
Tax law allows victims in federally declared disaster areas to file casualty claims in the year the incident happened or file an amended return for the previous year.
If they don't have all the material they need yet to file 2012 returns, they can amend their 2011 return now to include the casualty losses.
"It's one of the unique things about those disaster areas," Pickering said.
That's just one of the reasons people file amended returns.
Amended returns are often filed when taxpayers discover discrepancies in the income that was reported. Sometimes they receive a 1099 form late or a corrected one after they filed their returns. Or they may discover that they didn't take a deduction or credit to which they were entitled.
Some people are reluctant to file amended returns out of fear that they might be audited.
Mark Luscombe, principal tax analyst for CCH, said the IRS closely guards statistics on what type of returns invite audits.
"An amended return would not necessarily be an invitation for an audit," he said.
"It depends what's contained in there," said Greg Rosica, a partner at Ernst & Young. "If it's a very large refund it could get a different level of review."
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