Surprise, Surprise! You NEED to Know This!

Well, maybe I’m the only one. I recognize that I’m a busy person and I don’t always have time to read or watch the news.But how did I miss this one?????

Please, tell me. Am I the only one who just recently found out about the changes to our state taxes starting in 2012? The Michigan Income Tax Act was amended in May 2011, but I honestly don’t remember hearing about it back then (with one exception that I’ll mention later). And it wasn’t until one of my clients handed
me a letter from an organization she had contributed to in the past. They were informing her of the changes, in hopes she would donate more in 2011 to take advantage of the final year a tax credit would be available to her.

I promise this isn’t a political commentary. After all, I’m the last person who wants to be in a room where politics are being discussed. Too many opinions, too many emotions. But the reality is that the changes are coming and we all need to be educated.

So, in the spirit of remaining neutral, I just want to give everyone a summary of the biggest changes affecting many of us in 2012. We all need to understand these. Money is still tight for Michigan citizens. Planning now for the year to
come will be helpful to all of us!

First, the $600 deduction for children 18 and under has been repealed. This effectively increases taxes for families by $26 per child - a family with three children will owe Michigan an additional $78 in 2012!

Other deductions that have been repealed include Renaissance Zone deductions and certain miscellaneous deductions (political donations, prizes won in state games, charitable gifts from retirement plans). 

Second, many non-refundable credits have been repealed. They include credits for city income tax, public contributions, contributions to homeless shelters, food banks, and community foundations, contributions to medical savings accounts, donations to the Family Development Program, film credit for wage withholding, credit for automobile donations, credit for college tuition and fees, and credits for
historic rehabilitation plans certified after 2011.

I can’t help but wonder how some of the organizations listed above will fare in 2012. Will people continue to contribute money (or, at least, as much money) as they did in prior years now that the tax incentive to give is gone? And what about families who depended on the credit for college tuition and fees? Of course, the list of colleges qualifying for this credit was SMALL (only 8 colleges in 2011), but for families with students attending one of these schools, a credit of up to $375 was offered per student per year.

Third, several refundable credits have been reduced or repealed. The Earned Income Tax Credit has been decreased from 20% to 6%. The excess adoption expense credit and stillbirth credits have been repealed. And there are changes to the homestead property tax credit.

Of course, one of the biggest changes (which, by the way, I WAS aware of) is the way pensions will be taxed by the State. The group most affected by this change is people born after 1952. You can see a full list of personal income tax and retirement changes at www.michigan.gov/treasury. Click on the Michigan Tax Changes Information section.

So, politics aside, what can I say about all this? Basically, either go to the Michigan website and educate yourself on the changes or run to your “tax guy” to learn how the changes will affect you. Remember, these changes take effect for 2012—the tax forms we’ll soon be busy filing are not affected by these changes.  But, with money being tight these days, any chance we have to keep our income tax down is a good thing! And I’m sure we’ll be hearing more about these changes from the Press as the 2011 tax year wraps up.

Advice, anyone?