Filing 2012 income taxes? Five changes to watch for.
If this tax season has a theme, it's hurry up and wait. After all the last-minute maneuvering from Congress in the waning days of 2012, culminating in the dramatic New Year's Day passage of a "fiscal cliff" deal, Americans have had to wait for the Internal Revenue Service to catch up. The IRS delayed the filing of all tax returns until Feb. 1. Some taxpayers will have to wait until late February or early March before they can file their 2012 income taxes because some forms aren't yet ready. Even if you can't file right away, don't put off preparing your returns, tax experts say. Here are new income tax provisions to watch for as you work through that 1040 form:
1. Reinstated tax deductions
These deductions aren't new. The surprise is that they're still around. In the fiscal-cliff deal, Congress reinstated several expired tax breaks, if only temporarily.
One of the most important among the reinstated tax breaks is the deduction for state and local sales taxes. Tax-payers who take itemized deductions can deduct the sales taxes they pay in lieu of state and local income taxes. That might not mean much in a high-tax state like Connecticut or New Jersey. But it's a highly popular provision for residents of Texas, Florida, and other states that don't have a state income tax.
Another reinstated tax break is the deduction for mortgage insurance, typically something homeowners pay if they have made only a small down payment on their house. Two other tax breaks still holding on by their fingernails: the deduction for qualified college tuition and out-of-pocket teacher expenses. All these deductions are scheduled to disappear after 2013.
Another important deduction – because it directly reduces the tax owed, not just one's income – is the credit for homeowners who have installed energy-saving materials, such as insulation and energy-efficient doors and windows. The deduction allows a deduction that is a portion of the cost of materials up to a lifetime credit of $500.
One provision Congress did make permanent – an inflation-adjusted form of the alternative minimum tax – means that taxpayers will no longer be subjected to the yearly uncertainty of whether Washington would enact a patch to ensure the AMT would not ensnare middle-income taxpayers. "If you look over the history of the last 12 years, the number of people caught by the AMT does creep up each year, just not drastically," says Mark Luscombe, principal analyst at CCH Tax & Accounting based in Riverwoods, Ill.
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