GOBankingRates

2012 Is the Last Year to Claim These 5 Tax Write Offs

tax write offsThe Tax Relief Act of 2010 offered taxpayers many advantageous deductions. However, all good things must come to an end.

With tax season now in full swing and the hopefully temporary sequestration, there are several changes to tax write offs that may impact next year’s federal and state tax returns.

5 Tax Write Offs Out the Window

Here are some of the deductions you may not be able to take advantage of post-2012:

Alternative Minimum Tax (AMT)

The $33,750 Alternative Minimum Tax exemption amount expired in 2012. The tax was originally created in 1969 so that wealthy Americans would not be able to bypass the system to avoid paying federal income taxes. However, because AMT rates have not adjusted for inflation, the AMT targets both the rich, as well as the middle class. 

The government requires that you pay the higher of your tax liabilities. The Alternative Minimum Tax is a complicated dual tax system that, at times, confounds even the most financially savvy. First, you must calculate your regular tax, adding up total income, and then subtracting deductions, credits and personal exemptions. For the AMT, you can delete any standard deductions, personal exemptions or certain itemized deductions. As a result, depending on your income, you may owe more under the Alternative Minimum Tax than your tax liability under the regular tax rate.

It is estimated that this year, 27 million more Americans will be subject to the AMT.

The Payroll Tax Increase

If you’re employed in 2013, you’ve probably noticed a not-so-subtle decrease in your paycheck. The payroll tax cut, which reduced an employee’s share of Social Security taxes by two percentage points to new rate of 6.2 percent. Economists estimate this to account for approximately $700 extra per worker per year.

Limitation on Itemized Deductions

If you make more than $89,075 AGI under the married filing separately status and $178,150 for others in 2013, you may be limited in the number of itemized deductions you can claim on your tax return. These “Pease limitations” reduce 3% of your AGI over the threshold amount or by 80% of otherwise allowable itemized deductions.

Personal Income Tax Rates

Get ready to pay more taxes on your personal income beginning in 2013. For 11 years — from 2001 through 2012 — taxpayers were segmented into six tax rates ranging from 10% to 35%. In 2013, the five different new rates increased from 15% to 39.6%.

The Child Tax Credit

The Child Tax Credit was created as part of the Taxpayer Relief Act of 1997. It was established by Congress to address concerns that the tax structure did not adequately reflect a family’s reduced ability to pay taxes as their family size increased.

For several years, it has been worth as much as $1,000, per qualifying child under 17, depending on the income of the taxpayer. It ended in 2012, and beginning in 2013, a $500 deduction will be allowed for each qualifying child under 17 years.

Other Eye-Opening New Tax Changes

It seems the 2013 tax changes are never ending. The following are two more items that will take a bite out of most taxpayer’s wallets.

Student Loan Interest Deductions. With the high cost of a college and post-graduate education, a majority of people carry student loans for many years. In the past, you could deduct loans and interest up to $2,500 per year, with the amount of the deduction phased out based on income. In 2013, you will only be able to deduct the interest for the first five years of repayment.

Capital Gains Tax Rates. Most people invest in the stock market or in mutual funds, hoping to do well in building their portfolios. However, making a profit may mean being subject to a larger capital gains tax in coming years.

In 2012, long-term capital gains were taxed either at zero percent or at 15%. In 2013, the tax rate on long-term gains is scheduled to revert back to a rate of 20%, and a lower 10% rate would apply for those in the new 15% tax bracket. Additionally, if you own an asset for more than five years, you can expect an 18% capital gains tax rate, or if your income puts you in the 15% tax bracket, you’ll pay 8% in capital gains taxes.

Share This Article