What Congress Left Behind from 2011

Congress left behind a mess. The extension of the payroll reduction is only for the first two months of 2012, leaving more uncertainty for taxpayers, along with a complex apportionment formula to be used in filing 2012 tax returns if Congress does not extend the payroll tax credit for all of 2012. Although 2011 returns are more or less unchanged from 2010, it will be difficult to estimate 2012 tax liabilities or to advise on business decisions or tax strategies as many expiring provisions did just that – they expired on December 31, 2011. Among the more important provisions Congress left unaddressed for 2012 are:

Individual Provisions

• Increased exemption levels for the individual AMT and personal tax credits allowed against regular tax and the AMT
• Deduction for state and local general sales taxes
• Above-the-line deduction for qualified tuition and related expenses
• Deduction for elementary and secondary school teacher expenses
• Expansion of adoption credit and adoption assistance programs
• Parity for exclusion from income for employer-provided mass transit and parking benefits
• Treatment of premiums for mortgage insurance deductible as interest that is qualified residence interest

Business Provisions

• 100 percent bonus depreciation
• Increased section 179 expensing limit of $500,000 with $2 million phaseout threshold and expanded definition of section 179 property.
• Research and development credit  
• 15-year straight-line cost recovery for qualified leasehold improvements, restaurant buildings and improvements, and retail improvements
• Wage credit for employers of active-duty military members

Before the end of 2012, Congress must address many other expiring provisions, which means reviving the really big debate over whether to once again extend the Bush income tax cuts, estate and gift tax rules, capital gains tax rates.

In this uncertain environment, we feel that it is important to remain flexible when it comes to 2012 tax planning. Please do not hesitate to contact us to see how we can help.