Many tax deductions and credits have been extended through 2012. This means that taxpayers may be able to claim some additional credits on their tax returns for 2011. However, there may also be some additional taxes due on specific transactions this year so it's wise for taxpayers to find out about the following 12 tempting tax tips for 2012 in advance.
1. Look out for taxes on Roth IRA conversions.
If you converted a traditional IRA to a Roth IRA in the last couple of years and you opted to spread out the tax over future years you'll likely have another installment of taxes due on this year's return. Save up to cover those taxes and begin making plans to pay the next year's installment.
2. Take advantage of the American Opportunity Credit.
Extended through 2012, the American Opportunity Credit gives taxpayers a tax credit of up to $2,500 on qualifying college tuition. Up to $1,000 of the credit can be refunded to eligible individuals.
3. Pay attention to W-2 health care codes.
Under the new Affordable Care Act, employers must report the amount of health insurance premiums they pay on your behalf. This amount will be reported in Box 12 under the code "DD" and is not taxable to you.
4. Report amounts on Form 1099-K.
If you operate a small business, you might get a Form 1099-K if you receive payments from credit card transactions or third parties. The IRS receives a copy of this form as well so make sure you report the full amount on your return.
5. Prepare yourself for the effect of reporting a basis.
Any stock transactions you perform during 2011 will report the basis of the stock as well as the price you purchased it for. The basis helps determine the amount of profit you'll receive if you choose to sell.
6. Speed up income to take advantage of lower tax rates.
It's possible that tax rates will go up after 2012 if existing tax laws are not extended. To prepare for this, taxpayers who are in high tax brackets can save by accelerating their income to count for 2012 rather than later years.
7. Prepare for possible higher capital gain tax rates.
Investment income tax rates may also rise after 2012 particularly for assets held longer than a year. Locking in long-term investments before the end of the year can help you save on your tax bill.
8. Plan for an increase in Medicare taxes.
In 2013 taxpayers who sell investment property will be subject to a new 3.8 percent Medicare tax on the transaction. If you earn more than $200,000 in a year, plan ahead for the increased tax.
9. Remember the Alternative Minimum Tax.
Originally designed to collect higher taxes from wealthy citizens, the AMT now catches many middle-class taxpayers. If you earn near $100,000 talk to a tax resolution professional to assess your possible AMT risk.
10. Contribute to charity.
Charitable contributions are a big deduction for individuals, but an even bigger one for estates. These contributions are typically exempt from the gift tax assessed on estates.
11. Think about possible estate taxes.
After 2012, the estate tax exclusion may be reduced to $1 million. If so, estates that are worth more than that will be subject to a 55 percent estate tax.
12. Select a qualified tax professional.
Thanks to the IRS enforcing stricter regulations, it's becoming easier for taxpayers to hire a qualified tax preparer for tax preparation help. Check your preparer's credentials before hiring him or her.
Taking advantage of these 12 tax tips for 2012 can help you save on your upcoming income tax bill. If you have a tax provision that's set to expire this year get the most out of it on this year's return while you still can.