Congress enacted legislation, known as the American Taxpayer Relief Act, in the final hours of 2012 that increased taxes for the wealthiest Americans, and extended several expired tax benefits so they will be available in preparing your 2012 tax return. Here are some tax benefits that have been extended through 2012 and in some cases longer:
• The lower income tax rates for most Americans that were enacted by Congress in 2001.
• The lower capital gains and dividends rates for most Americans.
• The enhanced child tax credit.
• Marriage penalty relief.
• Enhancements in the dependent care credit and earned income tax credit.
• Enhancements in Coverdell Education Savings Accounts.
• Expansion of the credit for employer-provided educational assistance.
• Extension of the American Opportunity Tax Credit.
• Increased exemption amounts in computing the alternative minimum tax.
• An extension of the $250 above-the-line tax deduction for teachers and other school professionals for expenses paid or incurred for books and equipment used in the classroom.
• The deduction of state and local general sales taxes. And,
• Extension of tax-free distributions from individual retirement plans for charitable purposes.
There were several other recent tax developments that will affect tax reporting by both ministers and churches for 2012 and future years. Here is a rundown of some of the key provisions:
• The dollar limit on annual elective deferrals an individual may make to a 403(b) retirement plan was $17,000 for 2012. It increases to $17,500 for 2013. The catch-up contribution limit on elective deferrals to a 403(b) retirement plan for individuals who have attained age 50 by the end of the year was $5,500 in 2012, and remains the same for 2013.
• The standard business mileage rate was 55.5 cents per mile for 2012. The rate increases to 56.5 cents for 2013.
• The IRS maintains that a minister's housing allowance is "earned income" in determining eligibility for the earned income credit for ministers who have not opted out of Social Security by filing a timely Form 4361. For ministers who have opted out of Social Security the law is less clear, and the IRS has not provided guidance.
• Recent tax cuts enacted by Congress will result in lower taxes, and lower estimated tax payments, for many taxpayers. Be sure your estimated tax calculations or withholdings take into account the most recent tax law changes.
For 2012 the following three inflation adjustments took effect:
• The amounts of income you need to earn to boost you to a higher tax rate were adjusted for inflation.
• The value of each personal and dependency exemption, available to most taxpayers, increased to $3,800.
• The standard deduction is $11,900 for married couples filing a joint return, and $5,950 for singles and married individuals filing separately. Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.
I include a detailed analysis of all of the late-breaking tax changes Congress implemented in the American Tax Relief Act of 2012 that are relevant for churches and clergy in the 2013 Church & Clergy Tax Guide. You can pre-order your copy at ChurchLawAndTaxStore.com.
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