Taxmageddon, Part 2

Here are few more tax tips to help you prepare for the upcoming tax increases.  Plan now so you aren't surprised by a large unexpected tax bill at the end of next year.

2012 marks the last year the following tax provisions will be available, so, get them while you can.

Tip #6.  $1,000 Child tax credit.  The current $1,000 child tax credit will be reduced to $500 in 2013, plan accordingly.

Tip #7.  Preferred Dividend Tax Rate.  The ordinary tax dividends tax rate will no longer have a preferential tax rate of 15%, dividends will be taxed as ordinary income, 15% - 39.9% contingent upon income levels.

Tip #8.  The adoption credit.  In 2013 the $12,650 adoption tax credit will be completely eliminated.

Tip #9.  Full use of deductions and exemptions.  Also in 2013, as your income increases, itemized deductions and personal exemptions will be phased out.

Tip #10.  $2,500 American opportunity tax credit.  This college tuition tax credit expires and will not be available after 2013, regardless of income levels.

Tip #11.  Are you using your kids to lower your tax rate?  Remember your children under the age of 19 (under 24 if a full-time student) can have net unearned income taxed at their generally lower tax rate.  (Unearned income is usually investment and interest earnings).  The income limitation for 2012 is $1,900.  But be careful, investment income over this amount is taxed at the parent's tax rate.   This higher rate on excess earnings in a child's account is commonly called the "kiddie tax".

Remember the following tax breaks expired in 2011 and are no longer available.

Tip #12.   Mortgage insurance premiums deduction expired in 2011.

Tip #13.  $250 "above-the-line" deduction for unreimbursed classroom expenses for qualified elementary and secondary teachers has expired.

Tip #14.  Also expired is the general sales tax itemized deduction options versus state income tax deduction.

Tip #15.  Direct charitable contributions from a qualifying senior's IRA are also gone.

Tip #16.  Also expired in 2011, employer provided transit pass income exclusion drops from $230 per month to $125 per month.

Tip #17.  The Alternative Minimum Tax "patch" has also been eliminated.

Next time I'll include tips on how to maximize your charitable donations and review some income strategies the IRS can't touch.