Taxes: Plan Now for 2012
November 1, 2011
Profits are stated as "net after tax." Here are some tax changes set to apply that you can factor into your planning so you can get ready for the coming year.
Retirement plan changes
The dollar limits on contributions and benefits to qualified retirement plans in 2012 have been increased. Next year, in figuring contributions and benefits, you can take into account $250,000 in compensation (up from $245,000 in 2011). Other limitations:
- Contributions to profit-sharing plans and SEPs: $50,000 (up from $49,000).
- Benefits under defined benefit (pension) plans: $200,000 (up from $195,000).
- Elective deferrals to 401(k) and similar plans: $17,000 (up from $16,500). The additional contribution by those who are age 50 and older remains at $5,500.
- Elective deferrals to SIMPLE plans: Unchanged at $11,500 (plus $2,500 for those age 50 and older by year-end).
If your company has a plan in which employees make elective deferrals, tell your staff now about the contribution limits and obtain their commitment for 2012 by the end of 2011.
Payroll tax changes
The wage base for the Social Security portion of FICA increases to $110,100; it is $106,800 in 2011. This is the first increase in the wage base since 2009. For an employee earning the amount of the wage base or more, this means $205 in additional payroll taxes.
The tax rates are set to revert to 2010's rates, meaning that the Social Security portion of FICA for both the employer and employee will be 6.2% (instead of the 4.2% for the employee share in 2011). However, there have been suggestions to retain the lower rate in 2012, so stay tuned!
There is no wage base for the Medicare portion of FICA; it remains at 1.45% for both employers and employees.
For self-employed individuals, the Social Security portion is figured on up to $110,110 of net earnings. Again, the rate cut on the so-called employee share of Social Security in 2011 does not apply in 2012.
Fringe benefit changes
Some fringe benefit limits are set to change in 2012. If you offer them now, or plan to offer them in 2012, here are the limits to note:
- The monthly limit on free parking provided to employees for 2012 rises to $240 (up $10 from the limit in 2011). However, the temporary increase in the monthly limit on commuter highway vehicle and transit passes expires, reverting to $125 for 2012.
- The adoption assistance exclusion for companies that provide such assistance to employees declines to $12,650 because of an expiring law (down from $13,360 in 2011).
Breaks for capital investments
The limits on some favorable rules for buying equipment or investing in certain businesses are set to change as follows:
- First-year expensing (the Section 179 deduction) in 2012 will be $139,000 (down from $500,000 in 2011).
- Bonus depreciation will be 50% of the cost of qualified property (down from 100% in 2011).
- The exclusion for gain on the sale of qualified small business stock acquired in 2012 will be 50% (down from 100% for stock acquired in 2011). The stock must be held more than five years for this exclusion to apply.
Some of these limits could still be changed for 2012. In an ongoing effort to stimulate the economy, Congress could raise some of the limits or introduce new breaks to encourage hiring new employees and buying new equipment. Stay tuned!