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Dec 29

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Lots of tax breaks were not part of the two-month extension

With all the attention paid to the continuation of the payroll tax reduction into 2012, little attention has been given to other tax matters that expire on December 31, 2011. If Congress wants these items to continue, it will have to be done retroactively. Of course, tax planning is more challenging since one will need to guess about future tax laws.

The majority of the expiring tax provisions pertain to business credits and business tax incentives. There are dozens of such items – too many for me to want to list. I suspect that most of these will not be renewed.

Here are some of the more important (common)individual tax provisions that are disappearing as of January 1, 2012:

  1. The increased AMT exemption (aka the AMT patch”) expires. The AMT exemption reverts $45,000 for married individuals filing jointly, less 25% of alternative minimum taxable income exceeding $150,000; and $33,750 for unmarried individuals, less 25% of alternative minimum taxable income exceeding $112,500. The AMT will also be more painful because, starting in 2012, nonrefundable credits generally cannot be used to offset alternative minimum tax (AMT). A small list of exceptions remains.
  2. The maximum amount an employee will be able to exclude from income for employer-provided transit passes and transportation in a commuter highway vehicle in Section 132(f) plans for 2012 will be $125 per month, down from $230 per month in 2011.
  3. The deductibility on Schedule A of state and local sales tax, instead of state income taxes
  4. The above-the-line deduction of up to $4,000 for qualified tuition and related expenses

For businesses, the most important the expirations are 100% first-year bonus depreciation (Sec. 168(k)) and the expiration of the increased deduction amounts under Sec. 179. The Sec. 179 expensing limitation is reduced to $25,000 for 2012, and the phase-out threshold amount is lowered to $200,000.

About the author

David Nolte

I am a founding principal of Fulcrum Inquiry, an accounting and economic consulting firm that performs damage analysis for commercial litigation, forensic accountings, financial investigations, and business valuations. I am a Certified Public Accountant (CPA) and an Accredited Senior Appraiser (ASA), as well as having other professional credentials. I regularly serve as an expert witness involving damages measurement. My litigation-oriented resume is on Fulcrum's website.

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