10 tax tips for 2012
BY LAURIE WINSLOW World Staff Writer
Sunday, December 09, 2012
12/09/12 at 3:35 AM
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Taxpayers who itemize deductions have until Dec. 31 to donate to an IRS-qualified organization and claim it for 2012. Any non-cash contribution greater than $5,000 requires an appraisal.
Individuals can use their credit card to charge donations in 2012 even if they won't pay the bill until 2013. A pledge to make a donation is not deductible, however, unless it is paid by the end of this year. For claimed donations of cars, boats and airplanes of more than $500, the amount available as a deduction will depend on what the charity does with the property.
The 2012 maximum credit for the American Opportunity Tax Credit is $2,500 for qualified tuition and fees paid on behalf of a student who is enrolled at least half time in a post-secondary institution. The credit is available for the first four years of college.
The Lifetime Learning credit maximum is $2,000. A student must be taking post-secondary classes to acquire or improve job skills but doesn't have to be enrolled at least half time. As with the American Opportunity Credit, the credit is phased out at certain income levels.
The 2012 contribution limit for IRAs is $5,000 with an extra $1,000 catch-up for those over age 50. Individuals have until April 15, 2013, to make a deductible contribution to a traditional IRA and have it count toward their 2012 taxes.
A Roth IRA allows a nondeductible contribution. Earnings grow tax-free and distributions are tax-free as long as no distributions are made until more than five years after the first contribution and the individual has reached age 59 1/2.
Sources: IRS and Steve Milam, certified public accountant with Milam & Associates PLLC
The contribution limit is $17,000 for 2012. Those 50 and older whose plans have been amended to allow for catch-up contributions may contribute an additional $5,500 to their 401(k) for a total maximum contribution of $22,500.
Among other retirement plans, The SIMPLE plan contribution limit for 2012 is $11,500 with an additional $2,500 catch-up provision for those 50 and older, if the plan has been amended to allow that. Also, those who are 50 or older by the end of the year may contribute an additional $5,500 to their 403(b) plan, SEP or eligible government plan.
Solar panels can help you earn tax incentives. SAM HODGSON / Bloomberg
Incentives are available to taxpayers who install certain energy-efficient property, such as photovoltaic panels, solar water heating property, fuel cell property, small wind energy property and geothermal heat pumps. The property purchased cannot be used to heat swimming pools or hot tubs. General residential energy credits for things such as the installation of insulation, storm windows and high-efficiency surfaces expired in 2011.
Credit for adoption expenses
For 2012, the adoption credit limitation is $12,650 of total expenditures for each child. The credit for the adoption of a child with special needs is $12,650 regardless of the amount of expenses. The credit phases out for taxpayers whose income is between $189,710 and $229,710. Beginning in 2013, an adoption credit will be available only for adoption of special needs children.
Sales tax deduction
This deduction, which was put in place in 2002, is set to expire at the end of the year. Taxpayers who file a Form 1040 and itemize deductions on Schedule A can claim either state and local income taxes or state and local sales taxes but not both, according to the IRS. Taxpayers who have saved receipts throughout the year can add up the total amount of sales taxes paid and claim that amount. The IRS also provides a sales tax deduction calculator at tulsaworld.com/salestaxcalculator
MICHAEL WYKE / Tulsa World
Taxpayers who itemize can deduct medical expenses, including amounts paid as health insurance premiums, as long as those expenses exceed 7.5 percent of adjusted gross income. That is scheduled to increase to 10 percent next year but will stay at 7.5 percent for taxpayers age 65 or older. Accelerating medical expenses into 2012 is a wise move, especially for taxpayers whose AGI is lower.
Coverdell Education Savings Account
This is an important year to maximize savings in a Coverdell, which allows taxpayers to set aside money for college while their children are in kindergarten through 12th grade. For 2012, taxpayers can deduct up to $2,000. Next year that annual amount is set to drop to $500. The savings account operates like an IRA in that contributions are nondeductible, but the earnings grow tax-free. This year, the $2,000 limit is phased out for individual contributors with modified AGI between $95,000 and $100,000 and joint filers with modified AGI between $190,000 and $220,000.
DANIEL ACKER / Bloomberg
Selling an underwater home
Taxpayers who are considering selling or getting a loan on a home that is worth less than what is owed on it should do so this year if possible. In 2012, qualified mortgage debt relief from the lender is not considered income. If Congress fails to extend this tax benefit, any debt discharged on or after Jan. 1, 2013, will be considered income, and taxes will be owed on the amount forgiven.
MIKE SIMONS / Tulsa World file