Michigan Tax Law changes 1/1/2012


New legislation does not apply to returns thru April 2012, but returns that are due in April 2013.

Be aware of the following:

  • Tax rates
    • The rate remains at 4.35 % for tax year 2012.
    • For 2013 and each tax year thereafter the rate is 4.25%.
  • Personal exemption set at $3,700 (same as under current law) and will be indexed to inflation beginning in 2013.
    • Repeals special exemptions for seniors. & unemployment compensation greater than 50% of adjusted gross income (AGI).
    • Special exemption for disabled and exemption for disabled veterans – unchanged.
    • Phases out certain pension and retirement income subtractions based on date of birth.
  • Repeals
    • certain miscellaneous deductions (political donations; prizes won in state-regulated bingo, raffle, or charity games; charitable gifts from retirement plans).
    • the $600 deduction for children 18 and under.
    • Non-refundable Credits: for city income taxes, public contributions, credit for contributions to homeless shelters, food banks, and community foundations, automobile donations, college tuition and fees, reduces the Earned Income Tax Credit from 20% to 6%, excess adoption expense credit, stillbirth credit.
  • Changes the homestead property tax credit as follows:
    • Household income is replaced by total household resources which excludes losses from business, rentals and royalties and also excludes net operating losses.
    • Available only for homes with taxable value of less than $135,000.
    • For senior claimants: Full credit of 100% if total household resources are $21,000 or less and reduced by 4% for each additional $1,000 in total household resources until $30,000 is reached. For total household resources of $30,000 to $41,000 senior claimants receive 60% of the credit.
    • All other claimants are eligible for 60% of the tax credit. Credit phase out begins at $41,000 of total household resources and is reduced by 10% for each $1,000 increase. Complete phase-out at $50,000.
    • Alternative credit for eligible service person/veteran is still available.

Home Office refresher

Many folks work from their homes.

If the office is qualified, you may deduct up to $24,000 for the cost of computers as well as a share of heating, cooling, and maintenance expenses of the home. To qualify, the home office must be an area used exclusively for business activity, and it must be the principal location used to conduct business or meet with customers.

The IRS is very strict in granting the home office deduction and has disallowed the deduction when it determined that a taxpayer kept personal correspondence in the same area used for the business.

If you are furnished another office you are not allowed to take home-office deductions. Review IRS Publication 587.

Michigan Income Tax – Changes to the Pension Exclusion

Taxpayers will be classified into one of three categories :

  • Born before 1946- same treatment of retirement and Social Security income as in prior law.
  • Born 1946 – 1952 may take an exemption of $20,000 for a single return and $40,000 for a joint return against retirement income until age 67 when they may take that same exemption amount against all types of income.
  • Born after 1952 – no exemption for retirement income until age 67, except for the Social Security.  At 67,

(1)              the taxpayer has a choice between the $20,000/40,000 exemption against all types of income, with no personal exemptions and with no additional exemption for Social Security

(2)              continuing the exemption for Social Security, along with the personal exemptions for which they are eligible.

The $20,000/$40,000 exemption is not available when total household resources exceed $75,000 single $150,000 MFJ.

homestead property tax credit – more or less

Less for some, more for others !

…set a household income cap of $50,000 for claiming the credit, down from $82,650 currently and $70,000 under the original plan Gov. Rick Snyder presented Feb. 17…

Those with household incomes of $20,000 or less will be eligible for 100 percent tax credits, compared with 60 percent currently and 80 percent under Snyder’s February proposal, which was revenue-neutral.

“What we’re trying to do is beef up the support to moderate- and low-income families,” said Lt. Gov. Brian Calley, Snyder’s point man on tax issues.

Dave Maluchnik, a spokesman for the Michigan Catholic Conference, which advocates for the poor, called the shift “a step in the right direction.”

more from this story

Additional related links:


Budget deal – MI personal income taxes

The new proposal would exempt those aged 67 and older from the pension tax, Snyder said. For people 60 to 66 years old, the first $20,000 would be exempt for an individual and the first $40,000 for a couple. Pensions would be taxed at the full rate for retirees aged 59 and younger.

But once any Michigan resident turns 67, income exemptions of $20,000 for individuals and $40,000 for couples would apply, Snyder said.


The revised budget plan also makes further cuts to the Homestead Property Tax Credit, though the credit would be strengthened for those with incomes of $20,000 or less. …….. more

The Most Tax-Efficient Man in America

Wall Street Journal consistently turns our quality finance articles, this no exception….

In general, people who are employees and have side businesses are often in the best position to maximize the tax code’s benefits, say experts. Mr. Stives calls this “the best of all worlds.”

…Tax rules allow him to work for only three days of a 11-day trip and write off the airfare and a majority of other costs, he says. “To deduct the airfare, you have to spend more than half your working days on business, but travel days don’t count, and neither do weekend days you wouldn’t work anyway,” says Mr. Stives. “So I can leave on a Friday, teach for three days midweek, and return the following Monday.”

….”The most important lesson I teach my students,” he says, “is that just because something is deductible, that doesn’t make it free.”   more


IRS Ramps Up Mail Tax Audits

You’re now almost four times as likely to conduct your tax audit by mail, as you are to sit down with the tax man.

Of the more than 1.6 million Americans who were slapped with audits last year, 78% dealt with correspondence audits, while only 22% were asked to come in for an in-person examination.

That is a 13% rise in audits-by-mail from 2009, and a 93% jump compared to 2003. In 2000, the chances of getting a correspondence audit were less than 2 to 1.   more

Tax Time Picks – like eHow’s greatest hits..

Where to Save on Tuition & Taxes

“Appliance Credit”, a rebate, not a tax form

Rebates for ENERGY STAR® Appliances

You may be eligible to receive rebates from your state or territory for the purchase of new ENERGY STAR qualified Thumbnail image of the map showing approved State Energy Efficient Appliance Rebate Programs.appliances. These rebates are being funded with $300 million from the American Recovery and Reinvestment Act of 2009. Under this program, eligible consumers can receive rebates to purchase new energy-efficient appliances when they replace used appliances.   more more yet

For itemizers, IRS has set a tax-filing date of Feb. 14

Taxpayers search through a sea of tax forms offered to the public as tax season kicks off.

Taxpayers who claim itemized deductions will be able to file their federal tax returns starting Feb. 14, the IRS said Thursday.

While the tax-filing season began on Jan. 4, the IRS announced last year that taxpayers who itemize — which includes just about everyone who has a mortgage — would have to wait until at least mid-February to file.

The IRS said the delay was necessary because it needed more time to program its systems to accommodate tax breaks included in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010.

Employment Taxes: 941/940 deposits now via (EFTPS).

Electronic Federal Tax Payment System usage is now required for most every remitter.

Beginning in 2011, the Financial Management Service (FMS), a Bureau of the Treasury Department, is eliminating  Federal Tax Deposit Coupons (Form 8109)….beginning January 1, 2011, all deposits must be made using the Electronic Federal Tax Payment System (EFTPS).

There are penalties for depositing late, or for mailing payments directly to the IRS that are required to be deposited, unless you have reasonable cause for doing so.

Employers below the $2,500 threshold may remit the employment taxes with their Form 941 or Form 944, may voluntarily make deposits by EFTPS, or may use other methods of payment as provided by the instructions relating to the return

To enroll in EFTPS, call 800-555-4477, or to enroll online, visit http://www.eftps.gov. For general information about EFTPS, call 800-829-1040 for individuals or 800-829-4933 for businesses.

Refer to Publication 966 (PDF) for Electronic Federal Tax Payment System information and Publication 15, (Circular E), Employer’s Tax Guide.

New on the 2010 Form 1040


Due Date is April 18

No More Phase-Outs for Itemized Deductions and Exemptions

Liberalized Adoption Credit

One-Time Break for Self-Employed Individuals

Homebuyer Credit Repayment Rules Kick In

As I explained in an earlier column, you may have to repay part or all of the credit claimed for a 2008 or 2009 home purchase with your 2010 Form 1040.

In most cases, however, only those who purchased homes in 2008 will be affected. They will generally have to repay 1/15 of the credit with the 2010 Form 1040. If this rule impacts you, fill out Form 5405 (First-Time Homebuyer Credit and Repayment of the Credit), and enter the repayment amount as an addition to your tax bill on line 59 of Form 1040.

Real Estate Tax Deduction for Non-Itemizers is Gone

Deductions for Sales Taxes on New Vehicle Purchases Are Gone

Break for Unemployment Benefits Is Gone

In 2009, the first $2,400 of unemployment benefits was federal-income-tax-free. This break was not continued for 2010. Therefore, 100% of 2010 unemployment benefits generally must be reported as income on Form 1040 (use line 19).

Your Tax Preparer Might E-File Your Return This Time