In 2012, Many Tax Benefits Increase Due to Inflation Adjustments

USA — 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.

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.

However, the totality of taxes from: State, Federal, City, Utilities, Real Estate, Gasoline, Luxury Taxes and the rest of personal and business taxes are still putting many Americans in the 50% or higher tax rates.

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. http://www.irs.gov/newsroom/article/0,,id=248485,00.html

Dr. George Mentz is a world recognized wealth management commentator and professor who has authored several revolutionary books. Prof. Mentz, an international attorney, has been a keynote speaker globally in Asia, Arabia, USA, Mexico, Switzerland, and in the West Indies. Mentz can be contacted for speaking engagements at www.gmentz.com or www.managementconsultant.us

The Economic Issues and Some Defensive Strategies and Ideas
According to the WESP World Economic Situation and Prospects Report from the United Nations, the US and global economy is in a rut and having extreme difficulty moving forward. The report recommends that governments must be innovative and think of new strategies to cooperate with business and the workers to stimulate the economy.

As per the United Nations Report, the US economy still remains weak and without direction. The report states that, “In the United States, despite recent improvements, the unemployment rate remains well above pre-crisis levels, at over 8 per cent. In the euro area, it increased to a historic high of 10.9 per cent in March 2012. It reached alarming heights in the debt-ridden euro area countries: in Spain it had jumped to 24.1 per cent in March 2012 (up 8.6 in 2007), 21.7 per cent in Greece (up from 8), 13.5 in Portugal (up from 8.5), and 14.5 per cent in Ireland (up from 5). In developing countries, in contrast, employment rebounded more strongly.”

USA Economic Woes – The Highlights
1. In a May 9th ABC news report, the number of highly educated professionals or PhDs on public aid or welfare has tripled in recent months.
2. In total, 44 million people were on food stamps in the US on a monthly basis in 2011, compared with 17 million in 2000, according to the U.S. Department of Agriculture. – Source ABC News
3. Moreover, Business Week reported on May 31st that The number of Americans on Social Security disability has jumped 23 percent since 2007.
4. Presently, The level of employment is about five million jobs lower than where it was in 2008, when the economy slipped into recession.
5. A record 5.4 million workers with their dependents have signed up to collect federal disability checks since President Obama took office.
6. CNN now reports this May that 12.7 million are unemployed in the United States not including the 4 million who have may have given up looking for work.
7. Economists forecasts and estimates reveal that about another 4 million workers have simply stopped looking for work, and so do not show up in the Dept. of Labor tally used for the unemployment rate
8. Japan’s stock markets fell again with the broader Topix index hitting a 28-year low.
9. To make things worse in 2012, Wall Street Stocks ended down a whopping 2 percent, extending May’s rout. The DJI Dow Jones industrial average also dipped into negative territory for the year which is the biggest insult to injury to a potential recovery and to workers’ 401K Plans.
The United Nations States that there are Four major weaknesses continue to conspire against economic recovery:
1. Deleveraging by banks, firms and households, which continues to restrain normal credit flows and consumer and investment demand;
2. Unemployment remains high, a condition that is both cause and effect in preventing economic recovery;
3. Fiscal austerity responses to rising public debts deter economic growth and make a return to debt sustainability all the more difficult; and
4. Bank exposures to sovereign debt perpetuate fragility in the financial sector, which in turn spurs continued deleveraging.

The UNs Ban Ki-Moon said, “Worldwide, more than 400 million new jobs will be needed over the next decade. That means that policy-makers must get serious, now, about generating decent employment,” said Secretary-General Ban Ki-moon at the high-level thematic debate on The State of the World Economy and Finance and its Impact on Development, held on 17 May. “It is time to recognize that human capital and natural capital are every bit as important as financial capital,”

In conclusion, there needs to be new, bold, and efficient ways to stimulate hiring, employment and consumer spending. Governments should begin to look at ways to treat the working professional and the employers as the customer and determine what types of simple benefits and tax reform could be imparted upon the hardest working and the most steadfast contributors.

There needs to be greater incentives to: compete, to create, to invest, and to participate. If the cash, food, and health benefits of “not working” outweigh the rewards of: hard work, risk and job stress, then the entire system is totally broken. In sum, because the markets and investment yields are not advancing in recent years, the pensions and government obligations grow larger while the available money gets smaller. In the end, the state, federal and city governments are not using sustainable business practices or budgeting, and if costs are not constrained, then debts will become unmanageable and insurmountable.

Defensive Market Tips: Some Stock Sectors that were resilient this week were: Verizon VZ, WalMart WMT, AT&T Symbol T, Sara Lee SLE, AmerisourceBergen ABC, Johnson and Johnson JNJ, Pfizer PFE, ristol-Myers Squibb, Wellpoint WLP, or you can find ETFs that are defensive in nature that own gold, silver, or other commodities Gold/DGP or Silver/SLV
Other Typical Defensive Stocks may include: Microsoft MFST, Mastercard MA, Monsanto MON, Walgreens WAG, Merck MRK, VISA symbol V, Chevron CVX, Exxon XOM, Lowes LOW

George Mentz is a world recognized wealth management commentator who has authored several revolutionary books. Dr. Mentz, an international attorney, has been a keynote speaker globally in Asia, Arabia, USA, Mexico, Switzerland, and in the West Indies. Mentz can be contacted at www.gmentz.com

References & Citations:

http://www.un.org/en/development/desa/newsletter/desanews/feature/2012/06/index.html#3974

http://abcnews.go.com/Business/growing-number-americans-phds-receiving-food-stamps-aid/story?id=16310858

http://www.businessweek.com/articles/2012-05-31/federal-disability-insurance-nears-collapse

http://finance.yahoo.com/news/job-growth-falters-may-123604088.html

http://www.ssa.gov/policy/docs/quickfacts/stat_snapshot/

http://news.investors.com/article/608418/201204200802/ssdi-disability-rolls-skyrocket-under-obama.htm?p=full

http://money.cnn.com/2012/06/01/news/economy/europe-unemployment-jobs/index.htm

http://online.wsj.com/article/SB10001424052702304065704577424492946765620.html

http://www.reuters.com/article/2012/06/04/markets-japan-stocks-idUSL3E8H42LZ20120604

*No tax or investment advice is implied herein. Before making any important investment, tax, or legal decision, please speak to a licensed professional in your jurisdiction.