Whether you file your own federal taxes or outsource the task to a pro, you’ll want to be aware of some important changes to U.S. tax laws in 2012. Here are a few items (in order of relative importance for small-business owners) that may affect your small business — and how much you’ll owe Uncle Sam going forward.
Payroll tax. The Temporary Payroll Tax Cut Continuation Act of 2011 went into effect at the end of December, temporarily continuing the reduced Social Security tax withholding rate of 4.2 percent for employees and the 10.4 percent Self-Employment Contributions Act rate for self-employment income through Feb. 29, 2012. Employers must implement the new payroll tax rate by the end of January, per the IRS.
Decreased depreciation. For the 2011 tax year, you may deduct 100 percent of the cost of qualifying business items that you put into service the same year. In the 2012, the Small-Business Jobs and Credit Act of 2010 expires and the deduction shrinks to 50 percent.
Government contracts. If you do business with a government agency — including federal, state, or local entities — in 2012, amounts paid under contracts are subject to a 3 percent tax withholding.
Inflation adjusted deductions. In 2012, many deductions have been adjusted for inflation: Personal income and dependent deductions were increased to $3,800, and $11,900 is the new standard deduction for married couples filing a joint return. Singles and married individuals filing separately can take a $5,950 deduction. The per diem deduction for business lodging in 2012 is up to $77. However, if you use your vehicle for medical purposes or moving, note that the mileage rate has decreased to 23 cents per mile. You can access the complete list of 2012 inflation-based adjustments (20-plus pages) at IRS.gov.
Alternative minimum tax. According to the CPAs at WithumSmith+Brown, some 30 million taxpayers may find themselves required to pay this tax for the first time in 2012. AMT was created in the 1960s to ensure that the very wealthy paid sufficient tax. However, its lowered income levels now reach far beyond the “upper crust”: Exemption levels have dropped to $33,750 for individuals and $45,000 for married couples filing jointly.
Sales-tax write-offs. According to the nonpartisan tax research group The Tax Foundation, the option to deduct either state income or sales tax on your federal income-tax return expired at the end of 2011. Though it won’t impact your 2011 tax filing, you’ll no longer be able to deduct sales taxes in 2012 unless Congress renews the option. Small businesses in states with low to no income tax (which is still deductible) will be most impacted.
Expired R&D credit. This credit, which was intended to provide deductions for startups and small businesses with research costs, has expired. Congress has retroactively reinstated it nine times in the past, so it may not be gone for good.
Tax-free parking for employees. In 2012, companies can now pay up to $240 a month per employee for parking, tax-free, an increase of $10 from 2011.
Charitable donations. In 2011, taxpayers who are over the age of 70 1/2 can make tax-free distributions of up to $100,000 directly to a charity from a traditional IRA. This will no longer be the case in 2012, if lawmakers allow the credit to expire.
Rising tax rates. In 2013, tax rates are going up. If you use a cash-basis accounting method, there may be an incentive to get cracking on invoicing and collections before the tax rates increase. You may also want to consider holding off on certain expenses until 2013, as a way to offset income when tax rates increase.
Disappearing deductions for student loans. If you have student loans from current or past education expenses, the $2,500 maximum deduction for interest paid on them is phased out for married joint filers who make more than $125,000 in 2012. Those who make more $155,000 may no longer deduct the interest.