There can be no denying that the rise in popularity of republican presidential contender Herman Cain is due to his 9-9-9 flat tax plan. It’s also proof that American taxpayers strongly support a dramatic simplification of the federal income tax code.

Cain’s 9-9-9 tax plan is a brilliantly simple proposal to replace the extremely complex current tax code with a three part flat tax - 9% income tax, 9% corporate tax and a 9% national sales tax.

Steve Forbes, editor-in-chief of Forbes Media, estimates that the federal income tax code and all its attendant rules and regulations contain almost 10 million words.  It has changed 14,000 times since 1986; last year alone there were 500 changes to the federal income tax code.

IRS estimates that Americans spend more than 6 billion hours each tax year calculating and filing taxes.  By the tax year 2015, the cost to file taxes will cost Americans $483 billion a year.

Herman Cain’s 9-9-9 tax proposal, or flat tax, would replace all the current tax code with a single rate that would apply to all incomes after deductions.  His flat tax would eliminate taxes on savings, terminate the death tax. It would drastically cut the business profit tax and reduce tax loopholes.  Surprisingly, it would also do away with Social Security and Medicare payroll taxes.

Proponents of the flat tax say it would stimulate the economy and create jobs, would end crony capitalism and reduce lobbying in Washington.

Cain’s 9-9-9 tax plan has it’s challenges.  Introducing a national sales tax, on top of state and local taxes (that are already 9%) is a tough sale.  And if it did come to fruition, Washington politicians will always be looking for reasons to raise it.  This is already a problem in Europe, where some countries that already have their version of a national sales tax, called the Value Added Tax, have steadily increased the tax percentage.

Not everyone is gung-ho on the flat tax proposal.  Critics claim that the lack of the home mortgage interest deduction would hurt housing. They also point out that without a charitable contribution deduction, donations would plumment.

Both proponents and critics of a federal flat tax have to agree that the current federal income tax code is outdated, too complex, and too costly to continue.

Since Cain announced his 9-9-9 tax plan, other presidential contenders are coming with their own version of flat tax.

So what does all this mean?

The writing is on the wall, it’s just a matter of time before the flat tax replaces the current federal tax code.

The IRS announced important changes for the 2012 tax year.  Taxpayers can anticipate a rise in personal exemptions and standard deductions and a widening of tax brackets due to inflation.

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, see below

Medical Savings Accounts	Self-only coverage	Family coverage
Minimum annual deductible	$2,100	$4,200
Maximum annual deductible	$3,150	$6,300
Max 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.

Taxpayers should take note of these impending tax changes.

source: irs.gov

Starting in 2010, small businesses and tax-exempt organizations can get tax relief offered by the new Small Business Health Care Tax Credit. This tax credit, signed into law by President Obama earlier this year, takes effect beginning in the tax year 2010. It is designed to help small businesses and small tax-exempt organizations afford the cost of covering their employees.

“We want to make sure small employers across the nation realize that — effective this tax year — they may be eligible for a valuable new tax credit. Our postcard mailing — which is targeted at small employers — is intended to get the attention of small employers and encourage them to find out more,” IRS Commissioner Doug Shulman said. “We urge every small employer to take advantage of this credit if they qualify.”

The tax credit is available to small businesses that pay at least half the cost of single coverage for their employees in 2010. It was created specifically to offer tax help to small businesses and tax-exempt organizations that primarily employ low and moderate-income workers.

Below are specifics and answers to tax questions you may have about the tax credit:

Eligibility Rules
To qualify for this tax relief, small businesses and tax-exempt organizations must meet certain eligibility rules pertaining to the percentage of health care costs they provide, the firm size and average annual wage of it’s employees. The specific eligibility rules are as follows:

• Health care coverage
  A qualifying employer must cover at least 50 percent of the cost of health care coverage for some of its workers based on the single rate.
• Firm size
  A qualifying employer must have less than the equivalent of 25 full-time workers (small businesses with fewer than 50 half-time workers may be eligible).
• Average annual wage
  A qualifying employer must pay average annual wages below $50,000.
• Both taxable (for profit) and tax-exempt firms qualify

Amount of Credit
The maximum tax credit is 35% of premiums paid for small businesses and 25% for tax-exempt organizations. Since the credit is targeted to help those who employ low- and moderate-income workers, the maximum credit goes to smaller employers — those with 10 or fewer full-time equivalent (FTE) employees — paying annual average wages of $25,000 or less. Below are more details on the Amount of Credit:

• Maximum Amount
  The credit is worth up to 35 percent of a small business’ premium costs in 2010. On Jan. 1, 2014, this rate increases to 50 percent (35 percent for tax-exempt employers).
• Phase-out
  The credit phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers.

Small business or tax-exempt organizations can determine if they qualify for the Small Business Health Care Tax Credit with three simple steps.

To recap, starting in the tax year 2010, the new health care tax credit will offer small businesses tax help as an incentive to provide their employees health care coverage.

To get more information about the tax credit or get answers to your tax questions go the IRS website.

source: irs.gov