What are the Top Three Deductions for 2012?

in Tax Deductions

The year 2012 may be somewhat tame when compared to other years when there were many changes to tax codes, but this doesn’t mean that there won’t be great deductions for Americans to take advantage of. As with any year, it is important to learn which of these benefits can be used to lower a person’s tax payments as much as possible. The top three deductions of 2012 all focus on different segments of the population and most people will find that they fit into at least one of the categories.

The best tax deduction of the 2012 will come from higher education studies. After the Hope Credit was discontinued in 2009, it was replaced by the American Opportunity Tax Credit, a new plan created by President Obama to make it economically possible for everyone to attend university if they so desired. It was part of the President’s American Recovery and Reinvestment Act that was passed in 2009 and was meant to help stimulate the economy. Unfortunately, 2012 will be the last year of the American Opportunity Tax Credit unless Congress decides to create an extension to the program. Unlike previous deductions, this credit is meant for students of all ages and gives as much as $2,500 to each person enrolled in a university. In addition, the credit is refundable, which means that a student that is not required to pay taxes will actually receive income from the credit up to $1000. There are some requirements to meet this credit, but sister programs like the Lifetime Learning Credit have also been created to make sure that everyone has access to higher education.

While the American Opportunity Tax Credit is the best in terms of dollar value, the deduction that will get the most use in 2012 is the standard deduction, which has been raised to address rising inflation. In 2011, all of the various standard deductions gained some extra value, with individual tax filers seeing a standard deduction increase of $150 and married filers getting an additional $300 in their deduction. The biggest difference is seen by individuals that file as head of household, with their deduction being increased by $200. With around two thirds of all citizens filing taxes using the standard deduction, these gains will be thoroughly appreciated by the majority of the population.

Although not being such a big change, many families will be happy to see that the earned income tax credit deduction is also going through positive changes. For starters, the amount of the deduction will go up a little bit, moving from the 2011 total of $5,751 to a new amount of $5,891. In addition to the amount being higher, more people will be able to claim the earned income tax credit as the income limit is also being raised. The new ceiling for income is $50,270, representing an increase of around $1,200. While there are a number of additional credits that may be applicable in specific cases, these top three deductions will mean that most Americans will have less taxes to pay in 2012.

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