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.