THE NEW TAX NUMBERS FOR 2012
Things to Consider
A number of figures used in tax and retirement planning have been updated for 2012. Most limits for pension and IRA contributions have been increased slightly. For example:
The maximum contribution that can be made to a defined contribution plan in 2012 under Section 415 is the lesser of $50,000 or 100 percent of compensation-up from $49,000 in 2011.
The limit on employee elective deferrals to Section 401K and Section 403b plans has increased from $16,500 in 2011 to $17,000 for 2012. The limit for Section 457 plan salary reductions has likewise increased to $17,000.
The maximum elective deferral for a SIMPLE or 401 K SIMPLE plan has remained steady at $11,500 in 2012.
The limit on IRA contributions remains at $5,000 for 2012. Those 50 and older can still contribute an extra $1,000 under the special catch-up provision.
Here are a few of the income tax changes:
The standard deduction for joint filers and surviving spouses who do not itemize in 2012 is $11,900, up from $11,600 in 2011. For heads of household, the deduction is $8,700, and for unmarried individuals it’s $5,950. The aged and the blind get an additional $1,150 or $1,450 added to their standard deductions, depending on their filing status.
The personal exemption amount has increased from $3,700 in 2011 to $3,800 in 2012.
The personal exemption phase-out and itemized deductions phase-out have still been eliminated for 2012 although as of right now they are scheduled to return in 2013.
And here are some other items that may be important to you.
The reduction of the social security tax rate for individuals to 5.65% has been extended for the first two months of 2012. The rate is scheduled to increase to 7.65% after that. The rate for employers remains at 7.65%. The rate for self-employed individuals has also been reduced-to 13.3%–for the first two months before it returns to 15.3% later this year. The taxable wage base for the OASDI portion is $110,100 in 2012. Any additional compensation over that limit is subject to only the Medicare portion of 1.45% for individuals, 2.9% for the self-employed.
In 2012, the federal annual gift tax exclusion amount has remained at $13,000. The lifetime gift tax exemption has increased to $5.12 million.
The federal estate tax exemption has been increased to $5.12 million for 2012, as has the generation skipping tax exemption.
These changes may affect your retirement plan, your income tax planning and your estate plan. I recommend you take time to review those plans in light of the new numbers.