The tax code empowers the IRS to make automatic inflation adjustments to various tax preparation figures. When the purchasing power of the dollar changes enough, fixed amounts for certain tax rules are altered. The amounts that affect 2011 tax returns are already set. So tax return preparer review courses now can describe the dollar quantities effective for the upcoming tax season.
However, any tax adviser who will help people anticipate 2012 tax consequences must apply the newly announced IRS figures for next year. The tax planning course calculations for 2012 include a higher exemption amount and larger standard deductions. Tax brackets are also adjusted for inflation.
The amount of personal exemption - also applicable to each dependent on a tax return - is increased for 2012 to $3,800 per person from $3,700 for 2011. Standard deductions for 2012 tax preparer study are $5,950 for single filers and anyone married filing separately; $8,700 for those with head of household filing status; and $11,900 for married couples filing joint returns.
The inflation rate was not high enough to impact some smaller tax preparation figures. Inflation adjustments must cause rounding increases to the next $100 or sometimes $50. Therefore, the additional standard deductions for senior citizens and the blind remain unchanged. In addition, the kiddie tax still applies a parents' tax rate to a child's income exceeding $1,900.
Courses for online tax training will also provide needed planning figures for new tax brackets. The 25 percent bracket begins for individual taxpayers with income of $35,350 - up from $34,500 in 2011. For couples filing joint returns, that 25 percent is assessed on taxable income that reaches $70,700 compared to $69,000 for 2011 tax returns.
But, the Social Security Administration takes away the benefit of lower IRS tax rates on higher income. Social Security tax under FICA will apply to the first $110,100 of wages in 2012. This makes $6,826.20 the new maximum Social Security tax starting next year.
Workers with qualified retirement plans can contribute up to $17,000 of wages in 2012, an increase from $16,500 for 2011. The $5,500 catch-up contribution for individuals age 50 or older is unchanged.
Among the more complicated groups of figures tax preparers attempt to memorize are the income limitations on deduction of IRA contributions. Keeping a tax preparer study guide for close reference is generally recommended. The 2012 changes allow individuals with retirement plans at work to fully deduct traditional IRA contributions when modified AGI is less than $58,000. Married couples with retirement plans at work can only obtain full tax deduction when MAGI is below $92,000. A joint filing individual without a plan at work whose spouse is covered by a plan can deduct IRA contributions when MAGI is less than $173,000.
These income limits are where the phase-outs begin for maximum allowable deduction. At slightly higher amounts, the tax deduction of traditional IRA contributions is eliminated entirely. In addition, taxpayers allowed to make Roth IRA contributions also face income limitations. The phase-out for making the maximum Roth IRA contribution begins for individuals with MAGI of $110,000 and married couples with $173,000