About Me

Orlando, Florida, United States
McCarron Accounting & Consulting was established in 1990 to provide efficient, expert solutions to businesses and individuals. Our primary services include accounting, taxation, and business consulting. We also offer a host of specialty services to cater to the unique needs of our clients. We serve a wide range of individuals, corporations, partnerships, and non-profit organizations and have experience with the accounting issues and tax laws that impact our clients.

Tuesday, November 1, 2011

New IRS Inflation Adjustments could help or hurt your cash flow

The IRS recently announced inflation adjustments in the tax code for 2012. IRS statistics report inflation increased just over 3.8%. Obviously, this doesn't take into consideration the rising cost of food and gasoline, as these items have increased much more than that!

For some, the IRS inflation adjustments will result in lower tax burden for 2012. For others, their paycheck will be a little lower than in the past with an increase to the Social Security Wage base.

First the bad news.

Employees and self-employed individuals pay social security taxes on the wages, or profit for self-employed individuals. The maximum wage base subject to this tax increases for 2012 to $110,100 from $106,800. This is the first increase in the wage base since 2009.

Now some good news.
RETIREMENT PLANS
401Ks The maximum amount an individual can contribute tax-free to a 401(k) plan increased to $17,000. If you are 50 years old or more, you can contribute an extra $5,500 to you retirement plan.

Traditional IRAs.. The deduction for taxpayers making contributions to a traditional IRA is phased out for single individuals and heads of households who are covered by a workplace retirement plan and whose modified adjusted gross incomes fall within certain ranges. For 2012, the income phaseout range starts at $58,000 and ends at $68,000, up from $56,000 and $66,000, respectively, for 2011. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phaseout range for 2012 starts at $92,000 and ends at $112,000, up from $90,000 and $110,000, respectively, for 2011. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out for 2012 if the couple’s income is between $173,000 and $183,000, up from $169,000 and $179,000, respectively, for 2011.

Roth IRAs. are subject to similar rules. The AGI limit for maximum Roth IRA contributions for a married couple filing a joint return for 2012 is $173,000, an increase of $4,000 from 2011. The AGI limitation for all other taxpayers (other than married taxpayers filing separate returns) increases from $107,000 for 2011 to $110,000 for 2012.

Individual income tax brackets
Although tax rates have not gone down, inflation also impacts the individual income tax rate brackets (which are 10, 15, 25, 28, 33, and 35 percent, respectively, for 2011 and 2012). Indexing of the income tax rate brackets effectively lowers tax bills by including more of an individual’s income in lower brackets.

Standard deduction. Taxpayers who elect not to itemize deductions use the standard deduction amount. The standard deduction increases by $500 for married couples filing a joint return from $11,400 for 2011 to $11,900 for 2012. The standard deduction for single individuals increases from $5,700 for 2011 to $5,950 for 2012.

Personal exemption. Taxpayers may claim a personal exemption deduction (and an exemption deduction for each person they claim as a dependent). The amount of the personal exemption and the dependency exemption increases from $3,700 for 2011 to $3,800 for 2012. The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (2010 Tax Relief Act) repealed the personal exemption phaseout for higher income taxpayers for 2011 and 2012.

Estate tax. The 2010 Tax Relief Act provided that the basic exclusion amount for determining the amount of the unified credit against estate tax for estates of decedents dying after December 31, 2009 is $5 million. The $5 million amount is adjusted for inflation for tax years beginning after December 31, 2011. For 2012, the inflation-adjusted amount is $5,120,000.

Gift tax exclusion. For 2012, you can give up to $13,000 to any person without incurring gift tax. Married couples can gift up to $26,000 tax-free to any person. There is no limit on the number of individuals you can make the $13,000 ($26,000) gift. The $13,000 and $26,000 amounts are unchanged from 2011.

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