New 2012 Deductions that Save you Money

in Tax Deductions

There is good news and bad news about new 2012 tax deductions that could save you money on the yearly income tax you must pay. The bad news is that there are no new deductions. This means that the same ones you used last year will once again be relevant this year. However, the good news is that there are some changes to existing deductions that you should be aware of when you file your taxes. Instead of going by last year’s standards, you should make sure that you are using the following credits and deductions to their full advantage.

The first change is that the standard value of exemptions is going up. The 2011 total exemption for a person and any dependents was $3,700, but this number will rise by $100 to $3,800 this year. In a similar vein, the standard deductions for people who choose not to itemize their expenses will also increase. For a married couple that files their taxes together, the standard deduction will gain $300 and be set at $11,900. All others (single people and married couples that file separately) will see a $150 increase to a total of $5,950. The only difference is found in heads of household, who receive a $200 bump to $8,700 as their standard deduction. These small increases are complemented by slight changes to the income tax brackets – an alteration that could mean considerably less taxes to pay for people that sit on the cusp of two brackets.

Another deduction that will change in 2012 is the one for medical savings accounts. These accounts are used by self-employed people to lower the cost of medical expenses. The money paid into these accounts is tax-free when they are used for medical costs. In 2012, the amount that can be deposited into one of these accounts will increase a small amount and all self-employed people should be aware of the new change.

Not everything is rosy on the tax spectrum as there are some deductions that are being phased out. Contributions to standard IRAs for single taxpayers that earn between $58,000 and $68,000 will no longer be applicable for deductions if the person also has a retirement plan from their employer. Similar changes to IRA contributions are seen across the board and a married couple that is filing together will need to check the new limits before claiming this type of deduction. Higher income ranges are also being eliminated for Roth IRA deductions for both single and married filers.

Most of the changes to the 2012 tax deductions is being done due to inflation reasons. This means that while it may mean more money in your pocket, that money may not be able to buy the same things as it could in 2011. It is estimated that these changes will affect nearly everyone and should help to offset the rising costs of various goods and services. If you are doing your own taxes, check to make sure that you are using this year’s figures to prevent a math mistake from causing an audit of your return.

Have a tax question? Ask one of our tax professionals.