CulverGroup CPAs & Business Advisors

Michigan has made very significant changes in 2011, effective for 2012 and later years. These changes are affecting many of us, and there are a few opportunities most of us should consider using in December 2011 as these will expire January 1st, 2012. We have written before about Michigan’s 50% tax credit for the first $200 ($400 for married filing joint) donated to each of three categories of charities. This means you could receive up to a $100 ($200 for married filing joint) discount on your Michigan income tax bill for each of the three categories. (Total potential tax savings is $600 for a married couple filing joint.) If you would like to take advantage of them, this is the last year you may do so. Here are the categories of charities for which contributions are eligible for this credit.

1. Public Contributions (includes Michigan college and universities, Michigan public broadcasting, and public libraries)
2. Homeless Shelter / Food Bank (primary purpose must be to provide overnight accommodation, food or meals to indigent persons)
3. Community Foundations (must be a certified community foundation listed with the State of Michigan)

If you are interested in donating to charities that may qualify in these categories, we may be able to help you determine where and how to take advantage of these credits. Please feel free to give us a call to discuss this.

Another big change is with how pensions are taxed for Michigan residents. Many of you have already called our office with questions about how this will apply to you. Here is a summary based on what year you were born:

• If you were born before 1946, the rules remain generally unchanged. Your Social Security, pensions, and IRA distributions will continue to be largely exempt from tax as they have been. (Public pensions and Social Security is exempt, and generally the first $45,120 of private pension money is exempt ($90,240 for joint filers).
• If you were born in 1946 through 1952, Social Security continues to be exempt, but both public and private are taxable unless your total household resources are less than $75,000 ($150,000 for joint filers). For taxpayers with resources below these thresholds, a $20,000 exemption ($40,000 for joint filers) is allowed against their pension income until they reach age 67. Beginning at age 67, the exemption is reduced by the amount of exempt Social Security or other tax free income.
• If you were born after 1952, Social Security continues to be exempt, but public and private pensions are taxed unless your total household resources are less than $75,000 ($150,000 for joint filers), and you have reached age 67. Beginning at age 67, taxpayers with resources below the income thresholds receive a $20,000 exemption ($40,000 for joint filers) reduced by the amount of Social Security or tax free income.

NOTICE: The income thresholds in the above rules have been ruled unconstitutional. We don’t know exactly how these rules will be modified at the time this went to press. We will be updating this information as it becomes available.