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FAQ: Deductions | October 2012

Question: Can I deduct separate maintenance paid to my spouse or alimony paid to my former spouse?

Answer:

If you are separated or divorced, you may generally deduct payments of separate maintenance or alimony paid in cash (including check or money order payable on demand) to, or on behalf of, your spouse or former spouse.

 

Question: Am I eligible to claim both my job-related education expenses (minus 2% of AGI) and the Lifetime Learning Credit on my tax return?

Answer:

If you are eligible to deduct educational expenses and are also eligible for one of the education credits (the Lifetime Learning Credit or the American Opportunity Tax Credit), then it is possible to claim both. You cannot use the SAME educational expenses to claim both benefits (no “double benefit”).

  • You may choose to allocate some of your expenses to the deduction and others to the credit.
  • This can be desirable because a qualifying expense for one benefit may not be a qualifying expense for the other tax benefit. For example, the cost of course-related books ordinarily qualifies for the deduction, but not for the Lifetime Learning Credit. For tax years beginning in 2009 and 2010, course-related books may qualify for the American Opportunity Tax Credit.

 

 

Question: What types of work-related educational expenses are deductible?

Answer:

Deductible work-related educational expenses include:

  • Amounts spent for tuition, books, supplies, laboratory fees and similar items.
  • Transportation and travel expenses to attend qualified educational activities may also be deductible.

 

 

Question: Is interest on a home equity line of credit deductible as a second mortgage?

Answer:

You may deduct home equity debt interest, as an itemized deduction, if all the following conditions apply:

  • You are legally liable to pay the interest
  • You pay the interest in the tax year
  • The debt is secured with your home
  • The home equity debt is limited to the fair market value of the home reduced by home acquisition debt, up to a total of $100,000.
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Upcoming Tax Deadlines | October 2012

October

Mon1File Form 730 and pay tax on wagers accepted during August.
Mon1File Form 2290 and pay the tax for vehicles first used during August.
Wed3Deposit payroll tax for payments on Sep 26-28 if the semiweekly deposit rule applies.
Fri5Deposit payroll tax for payments on Sep 29 – Oct 2 if the semiweekly deposit rule applies.
Wed10
 Employers: Employees are required to report to you tips of $20 or more earned during September.
Thu11 Deposit payroll tax for payments on Oct 3-5 if the semiweekly deposit rule applies.
Fri12 Deposit payroll tax for payments on Oct 6-9 if the semiweekly deposit rule applies.
Mon15 Deposit payroll tax for Sep if the monthly deposit rule applies.
Mon15
 Individuals: File 2011 Form 1040, 1040A, or 1040EZ if you timely requested a 6-month extension.
Mon15
 Electing Large Partnerships: File 2011 Form 1065 if you timely requested a 6-month extension.
Mon15 File 2011 Form 5500 if you timely requested an extension on Form 5558.
Wed17 Deposit payroll tax for payments on Oct 10-12 if the semiweekly deposit rule applies.
Fri19 Deposit payroll tax for payments on Oct 13-16 if the semiweekly deposit rule applies.
Wed24 Deposit payroll tax for payments on Oct 17-19 if the semiweekly deposit rule applies.
Fri26 Deposit payroll tax for payments on Oct 20-23 if the semiweekly deposit rule applies.
Wed31 Deposit payroll tax for payments on Oct 24-26 if the semiweekly deposit rule applies.
Wed31 File Form 720 for the third quarter of 2012.
Wed 31 File Form 730 and pay tax on wagers accepted during September.
Wed31 File Form 2290 and pay the tax for vehicles first used during September.
Wed 31 File Form 941 for the third quarter of 2012.
Wed 31 Deposit FUTA owed through Sep if more than $500.

 

November

Fri2Deposit payroll tax for payments on Oct 27-30 if the semiweekly deposit rule applies.
Wed 7Deposit payroll tax for payments on Oct 31 – Nov 2 if the semiweekly deposit rule applies.
Fri9Deposit payroll tax for payments on Nov 3-6 if the semiweekly deposit rule applies.
Tue13 
Employers: Employees are required to report to you tips of $20 or more earned during October.
Tue13File Form 941 for the third quarter of 2012 if you timely deposited all required payments.
Thu15Deposit payroll tax for Oct if the monthly rule applies.
Thu15Deposit payroll tax for payments on Nov 7-9 if the semiweekly deposit rule applies.
Fri16Deposit payroll tax for payments on Nov 10-13 if the semiweekly deposit rule applies.
Wed21Deposit payroll tax for payments on Nov 14-16 if the semiweekly deposit rule applies.
Mon26Deposit payroll tax for payments on Nov 17-20 f the semiweekly deposit rule applies.
Wed28Deposit payroll tax for payments on Nov 21-23 if the semiweekly deposit rule applies.
Fri30Deposit payroll tax for payments on Nov 24-27 if the semiweekly deposit rule applies.
Fri30 File Form 730 and pay tax on wagers accepted during October.
Fri30File Form 2290 and pay the tax for vehicles first used during October.

 

December

Wed5Deposit payroll tax for payments on Nov 28-30 if the semiweekly deposit rule applies.
Fri7Deposit payroll tax for payments on Dec 1-4 if the semiweekly deposit rule applies.
Mon10Employers: Employees are required to report to you tips of $20 or more earned during November.
Wed12Deposit payroll tax for payments on Dec 5-7 if the semiweekly deposit rule applies.
Fri14Deposit payroll tax for payments on Dec 8-11 if the semiweekly deposit rule applies.
Mon17Deposit payroll tax for Nov if the monthly deposit rule applies.
Mon17Corporations: Deposit the fourth installment of your estimated tax for 2012.
Wed19Deposit payroll tax for payments on Dec 12-14 if the semiweekly deposit rule applies.
Fri21Deposit payroll tax for payments on Dec 15-18 if the semiweekly deposit rule applies.
Thu27Deposit payroll tax for payments on Dec 19-21 if the semiweekly deposit rule applies.
Fri28  Deposit payroll tax for payments on Dec 22-25 if the semiweekly deposit rule applies.
Mon31File Form 730 and pay tax on wagers accepted during November.
Mon31File Form 2290 and pay the tax for vehicles first used during November.
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Upcoming Tax Deadlines | July 2012

Mon 2 File Form 11-C to register and pay annual tax if you are in the business of taking wagers.

Mon 2 File Form 730 and pay the tax on wagers accepted during May.

Mon 2 File Form 2290 and pay the tax

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Payroll Tax Cut Extended to the End of 2012

The IRS released revised Form 941 enabling employers to properly report the newly-extended payroll tax cut benefiting nearly 160 million workers.

Under the Middle Class Tax Relief and Job Creation Act of 2012, workers will continue to receive larger paychecks for the rest of this year based on a lower social security tax withholding rate of 4.2 percent, which is two percentage points less than the 6.2 percent rate in effect prior to 2011. This reduced rate, originally in effect for all of 2011, was extended through the end of February by the Temporary Payroll Tax Cut Continuation Act of 2011, enacted Dec. 23.

No action is required by workers to continue receiving the payroll tax cut. As before, the lower rate will have no effect on workers’ future Social Security benefits.  The reduction in revenues to the Social Security Trust Fund will be made up by transfers from the General Fund.

Self-employed individuals will also benefit from a comparable rate reduction in the social security portion of the self-employment tax from 12.4 percent to 10.4 percent. For 2012, the social security tax applies to the first $110,100 of wages and net self-employment income received by an individual.

The new law also repeals the two-percent recapture tax included in the December legislation that effectively capped at $18,350 the amount of wages eligible for the payroll tax cut. As a result, the now repealed recapture tax does not apply.

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Upcoming Tax Deadlines | April 2012

April

Mon2 Electronically file Forms W-2, W-2G, 1098, 1099, and 8027.
Wed4 Deposit payroll tax for payments on Mar 28-30 if the semiweekly deposit rule applies.
Fri6 Deposit payroll tax for payments on Mar 31 – Apr 3 if the semiweekly deposit rule applies.
Tue10
 Employers: Employees are required to report to you tips of $20 or more earned during March.
Wed11 Deposit payroll tax for payments on Apr 4-6 if the semiweekly deposit rule applies.
Fri13 Deposit payroll tax for payments on Apr 7-10 if the semiweekly deposit rule applies.
Tue17
 Household Employers: File Sch. H with Form 1040 if you paid $1,700 or more to a household employee.
Tue17  Corporations: Deposit the first installment of your estimated tax for 2012.
Tue17Employers: Deposit payroll tax for Mar. if the monthly deposit rule applies.
Tue17Individuals: File 2011 Form 1040, 1040A, or 1040EZ. For automatic 6-month extension file Form 4868 and deposit estimated tax. Pay the first installment of 2012 estimated tax.
Tue17Partnerships: File 2011 Form 1065 and furnish a copy of Sch. K-1 to each partner.
Tue17Electing Large Partnerships: File 2011 Form 1065 calendar year return.
Thu19Deposit payroll tax for payments on Apr 11-13 if the semiweekly deposit rule applies.
Fri20Deposit payroll tax for payments on Apr 14-17 if the semiweekly deposit rule applies.
Wed25Deposit payroll tax for payments on Apr 18-20 if the semiweekly deposit rule applies.
Fri27Deposit payroll tax for payments on Apr 21-24 if the semiweekly deposit rule applies.
Mon30File Form 720 for the first quarter of 2012.
Mon30File Form 730 and pay the tax on wagers accepted during March.
Mon30File Form 2290 and pay the tax on vehicles first used in March.
Mon30Employers: File Form 941 for the first quarter of 2012.
Mon30Deposit FUTA tax owed through Mar if more than $500.


May

Wed2Deposit payroll tax for payments on Apr 25-27 if the semiweekly deposit rule applies.
Fri4Deposit payroll tax for payments on Apr 28 – May 1 if the semiweekly deposit rule applies.
Wed9Deposit payroll tax for payments on May 2-4 if the semiweekly deposit rule applies.
Thu10Employers: Employees are required to report to you tips of $20 or more earned during April.
Thu10File Form 941 for the first quarter of 2012 if you timely deposited all required payments.
Fri11  Deposit payroll tax for payments on May 5-8 if the semiweekly deposit rule applies.
Tue15Deposit payroll tax for Apr if the monthly deposit rule applies.
Wed16Deposit payroll tax for payments on May 9-11 if the semiweekly deposit rule applies.
Fri18Deposit payroll tax for payments on May 12-15 if the semiweekly deposit rule applies.
Wed23Deposit payroll tax for payments on May 16-18 if the semiweekly deposit rule applies.
Fri25Deposit payroll tax for payments on May 19-22 if the semiweekly deposit rule applies.
Thu31File Form 730 and pay the tax on wagers accepted during April.
Thu31File Form 2290 and pay the tax for vehicles first used during April.
Thu31Deposit payroll tax for payments on May 23-25 if the semiweekly deposit rule applies.


June

Fri1Deposit payroll tax for payments on May 26-29 if the semiweekly deposit rule applies.
Wed6Deposit payroll tax for payments on May 30 – Jun 1 if the semiweekly deposit rule applies.
Fri8Deposit payroll tax for payments on Jun 2-5 if the semiweekly deposit rule applies.
Mon11Employers: Employees are required to report to you tips of $20 or more earned during May.
Wed13Deposit payroll tax for payments on Jun 6-8 if the semiweekly deposit rule applies.
Fri15Employers: Deposit payroll tax for May if the monthly deposit rule applies.
Fri15Corporations: Deposit the second installment of your 2012 estimated tax.
Fri15Deposit payroll tax for payments on Jun 9-12 if the semiweekly deposit rule applies.
Fri15Individuals outside the U.S.: File 2011 Form 1040.
Fri15Individuals: Pay the second installment of estimated tax for 2012.
Wed20Deposit payroll tax for payments on Jun 13-15 if the semiweekly deposit rule applies.
Fri22  Deposit payroll tax for payments on Jun 16-19 if the semiweekly deposit rule applies.
Wed27Deposit payroll tax for payments on Jun 20-22 if the semiweekly deposit rule applies.
Fri29Deposit payroll tax for payments on Jun 23-26 if the semiweekly deposit rule applies.
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In 2012, Many Tax Benefits Increase Due to Inflation Adjustments

For tax year 2012, personal exemptions and standard deductions will rise and tax brackets will widen due to inflation, the Internal Revenue Service announced today.

By law, the dollar amounts for a variety of tax provisions, affecting virtually every taxpayer, must be revised each year to keep pace with inflation. New dollar amounts affecting 2012 returns, filed by most taxpayers in early 2013, include the following:

  • The value of each personal and dependent exemption, available to most taxpayers, is $3,800, up $100 from 2011.
  • The new standard deduction is $11,900 for married couples filing a joint return, up $300, $5,950 for singles and married individuals filing separately, up $150, and $8,700 for heads of household, up $200. Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.
  • Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $70,700, up from $69,000 in 2011.

Credits, deductions, and related phase outs.

  • For tax year 2012, the maximum earned income tax credit (EITC) for low- and moderate- income workers and working families rises to $5,891, up from $5,751 in 2011. The maximum income limit for the EITC rises to $50,270, up from $49,078 in 2011.The credit varies by family size, filing status and other factors, with the maximum credit going to joint filers with three or more qualifying children.
  • The foreign earned income deduction rises to $95,100, an increase of $2,200 from the maximum deduction for tax year 2011.
  • The modified adjusted gross income threshold at which the lifetime learning credit begins to phase out is $104,000 for joint filers, up from $102,000, and $52,000 for singles and heads of household, up from $51,000.
  • For 2012, annual deductible amounts for Medical Savings Accounts (MSAs) increased from the tax year 2011 amounts; please see the table below.

 

Medical Savings Accounts (MSAs)Self-only coverageFamily coverage
Minimum annual deductible$2,100$4,200
Maximum annual deductible$3,150$6,300
Maximum annual out-of-pocket expenses$4,200$7,650

 

The $2,500 maximum deduction for interest paid on student loans begins to phase out for a married taxpayers filing a joint returns at $125,000 and phases out completely at $155,000, an increase of $5,000 from the phase out limits for tax year 2011. For single taxpayers, the phase out ranges remain at the 2011 levels.

Estate and Gift

For an estate of any decedent dying during calendar year 2012, the basic exclusion from estate tax amount is $5,120,000, up from $5,000,000 for calendar year 2011. Also, if the executor chooses to use the special use valuation method for qualified real property, the aggregate decrease in the value of the property resulting from the choice cannot exceed $1,040,000, up from $1,020,000 for 2011.

The annual exclusion for gifts remains at $13,000.

Other Items

  • The monthly limit on the value of qualified transportation benefits exclusion for qualified parking provided by an employer to its employees for 2012 rises to $240, up $10 from the limit in 2011. However, the temporary increase in the monthly limit on the value of the qualified transportation benefits exclusion for transportation in a commuter highway vehicle and transit pass provided by an employer to its employees expires and reverts to $125 for 2012.
  • Several tax benefits are unchanged in 2012. For example, the additional standard deduction for blind people and senior citizens remains $1,150 for married individuals and $1,450 for singles and heads of household.

Details on these inflation adjustments can be found in Revenue Procedure 2011-52, which will be published in Internal Revenue Bulletin 2011-45 on November 7, 2011.

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2012 Standard Mileage Rates

Beginning on Jan. 1, 2012, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 55.5 cents per mile for business miles driven
  • 23 cents per mile driven for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations

The rate for business miles driven is unchanged from the mid-year adjustment that became effective on July 1, 2011. The medical and moving rate has been reduced by 0.5 cents per mile.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical or charitable expense are in Rev. Proc. 2010-51.

Notice 2012-01 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

Related Item: IR-2011-104, In 2012, Many Tax Benefits Increase Due to Inflation Adjustments

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Deadline Extended to April 17

The Internal Revenue Service opened the 2012 tax filing season by announcing that taxpayers have until April 17 to file their tax returns.

Taxpayers will have until Tuesday, April 17, to file their 2011 tax returns and pay any tax due because April 15 falls on a Sunday, and Emancipation Day, a holiday observed in the District of Columbia, falls this year on Monday, April 16. According to federal law, District of Columbia holidays impact tax deadlines in the same way that federal holidays do; therefore, all taxpayers will have two extra days to file this year. Taxpayers requesting an extension will have until Oct. 15 to file their 2012 tax returns.

The IRS expects to receive more than 144 million individual tax returns this year, with most of those being filed by the April 17 deadline.

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Upcoming Tax Deadlines | January 2012

January

FriDeposit payroll tax for payments on Jan 1-3 if the semiweekly deposit rule applies.
Tue10 
Employers: Employees are required to report to you tips of $20 or more earned during Dec 2011
Wed 11  Deposit payroll tax for payments on Jan 4-6 if the semiweekly deposit rule applies.
Fri13Deposit payroll tax for payments on Jan 7-10 if the semiweekly deposit rule applies.
Tue17Individuals: Pay the final installment of your 2011 estimated tax. Use Form 1040-ES.
Tue17Farmers and fishermen: Pay your estimated tax for 2011. Use Form 1040-ES.
Tue17Employers: Deposit payroll tax for Dec 2011 if the monthly deposit rule applies.
Thu19Deposit payroll tax for payments on Jan 11-13 if the semiweekly deposit rule applies.
Fri20Deposit payroll tax for payments on Jan 14-17 if the semiweekly deposit rule applies.
Wed25Deposit payroll tax for payments on Jan 18-20 if the semiweekly deposit rule applies.
Fri27Deposit payroll tax for payments on Jan 21-24 if the semiweekly deposit rule applies.
Tue31File Form 720 for the fourth quarter of 2011.
Tue31Furnish Forms 1098, 1099 and W-2G to recipients for certain payments during 2011. Furnish Form W-2 to employees who worked for you during 2011.
Tue31File Form 730 and pay the tax on wagers accepted during Dec 2011.
Tue31Deposit any FUTA tax owed through Dec 2011.
Tue31File Form 2290 and pay the tax for vehicles first used in Dec 2011.
Tue31Files Forms 940, 941, 943, 944 and/or 945 if you did not deposit all taxes when due.
Tue31File your tax return if you did not pay your last installment of esimated tax by January 17th

February

Wed1Deposit payroll tax for payments on Jan 25-27 if the semiweekly deposit rule applies.
Fri3Deposit payroll tax for payments on Jan 28-31 if the semiweekly deposit rule applies.
Wed  8Deposit payroll tax for payments on Feb 1-3 if the semiweekly deposit rule applies.
Fri10 Deposit payroll tax for payments on Feb 4-7 if the semiweekly deposit rule applies.
Fri10Employers: Employees are required to report to you tips of $20 or more earned during Jan.
Fri10File 2011 Forms 940, 941, 943, 944 and/or 945 if you timely deposited all required payments.
Wed15File a new Form W-4 if you claimed exemption from income tax withholding in 2011.
Wed15Furnish Forms 1099-B, 1099-S and certain Forms 1099-MISC to recipients.
Wed15Deposit payroll tax for Jan if the monthly deposit rule applies.
Wed15Deposit payroll tax for payments on Feb 8-10 if the semiweekly deposit rule applies.
Thu16Begin withholding on employees who claimed exemption from withholding in 2011 but did not file a W-4 to continue withholding exemption in 2011.
Fri17Deposit payroll tax for payments on Feb 11-14 if the semiweekly deposit rule applies.
Thu23Deposit payroll tax for payments on Feb 15-17 if the semiweekly deposit rule applies.
Fri24Deposit payroll tax for payments on Feb 18-21 if the semiweekly deposit rule applies.
Tue28File information returns, including Forms 1098, 1099 and W-2G for payments made during 2011.
Wed29File Form W-3 with Copy A of all Forms W-2 issued for 2011.
Wed29File Form 8027 if you are a large food or beverage establishment.
Wed29File Form 730 and pay the tax on wagers accepted during January.
Wed29File Form 2290 and pay the tax for vehicles first used in January.
Wed29Deposit payroll tax for payments on Feb 22-24 if the semiweekly deposit rule applies.


March

Thu1
 Farmers and fishermen: File 2011Form 1040 and pay any tax due. However, you have until Apr 17 to file if you paid your 2011 estimated tax payments by Jan 15, 2012.
Fri2 Deposit payroll tax for payments on Feb 25-28 if the semiweekly deposit rule applies.
Wed7 Deposit payroll tax for payments on Feb 29 – Mar 2 if the semiweekly deposit rule applies.
Fri9 Deposit payroll tax for payments on Mar 3-6 if the semiweekly deposit rule applies.
Mon12
 Employers: Employees are required to report to you tips of $20 or more earned during February.
Wed14 Deposit payroll tax for payments on Mar 7-9 if the semiweekly deposit rule applies.
Thu15
 Corporations: File Form 1120 for 2011 calendar year and pay any tax due. For automatic 6-month extension, file Form 7004 and deposit estimated tax.
Thu15 Employers: Deposit payroll tax for Feb. if the monthly deposit rule applies.
Thu15

 S Corporations: File Form 1120S for 2011 calendar year and pay any tax due. Furnish a copy of Sch. K-1 to each shareholder. File Form 2553 to elect S Corporation status beginning with calendar year 2012.
Thu15 Electing Large Partnerships: Furnish Sch. K-1 (Form 1065-B) to each partner.
Fri16Deposit payroll tax for payments on Mar 10-13 if the semiweekly deposit rule applies.
Wed21Deposit payroll tax for payments on Mar 14-16 if the semiweekly deposit rule applies.
Fri23Deposit payroll tax for payments on Mar 17-20 if the semiweekly deposit rule applies.
Wed28Deposit payroll tax for payments on Mar 21-23 if the semiweekly deposit rule applies.
Fri30Deposit payroll tax for payments on Mar 24-27 if the semiweekly deposit rule applies.
Sat31File Form 2290 and pay the tax for vehicles first used in February.
Sat31File Form 730 and pay the tax on wagers accepted during February.
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