Is it even possible to set up a system in 12x12 room?

@paulcreed   Cannot help you with home made acoustic treatments, they may or may not work? However, if you look at my system photo, you can get an idea as to how I have placed the room treatments. I also utilize a pair of the excellent Shakti Hallograph's. These tend to focus and extend the soundstage. 
Couch vs. chair...IF you have space in the room with all of the other gear, then I would say it probably doesn't matter. I use a chair, for the simple reason that it gives me more space and it allows me to sit a little higher.
I very much doubt that your new room will be any harder to set up than a 'normal' size room, whatever that is?? BTW, is this going to be a dedicated room..or are you also going to be putting in TV's, beds etc?

No this is a dedicated room, no tv but may put one on later. There will be a lot of gear going between speakers. 2 amps, preamp, CD player and power supply, Linn turntable on wall shelf with power supply, phono preamp, 2 power conditioner one rack mount and one behind rack. Also a tube amp when I want to swap out. Before I used 3 maple 3 foot racks with 3 shelves each, so between speakers it's full but I had more room since  speakers were father apart. I have a couple amp stands I could use to keep things low and get rid of one of the little racks. Dave I noticed you have well tempered arm on your Linn how do you like it. I had a Naim aro but regretfully sold it, I'm now using a ittok 3 and hot rodded audioquest PT 9. Were you able to mount and set up WT arm yourself or did you have to send it off?

DO NOT replace equipment. Everything you have is fine. Some people think they need different stuff, which is a fallacy and waste of money. Plus you end up with the same problems as before.

I'm in an 11' X 12' X 8' room. The listening chair is against the back wall. Monitors on stands are 5' 6" from the chair and 56" apart. There is plenty of room behind the speakers and on the sides. The equipment racks are on the (drum-roll, please) front wall! There is a TV there also. Record storage and computer desk are on the sides. Cozy.

Treat the trihedral corners and reflection points on the sides and back wall first. GiK Acoustics will probably start with more than is necessary, but they will be a great help. Talk to John Dykstra, he did a very thoughtful design for my room.  I would do it incrementally because you don't want too much control.
You're starting from scratch so you have the luxury of doing almost any configuration that will fit in that room. Jim Smith (GetBetterSound.com) suggested going to the 45 degree setup, but I would have to tear my room down and start all over. For me the treatments were a better option but if I were doing it from scratch I'd do more homework to design the room correctly from the floor up.

It took a long time to get where I am now and if I had been more thoughtful when I moved in to the room it would be laid out differently and I would have had way less trouble. I thought I would never get it right. I had two modes that were annoying but now I can't believe how good it sounds.

Now I'm going to install two REL T/7i's. They say they will work although I am skeptical. Proper room treatments can make a kids phono sound great (almost).


Rollin

I’ll keep it short... what works for me in my 8 x 12 room. Two "tricks" that made all the difference:

1. Turn down the bass (a lot.. below 150 hz or so) in one speaker only. this reduces the boom effect caused by close room corners in your small room. Bass is non-directional and will sound so much cleaner. (less corner effect, fewer phase problems in small rooms). Try it!

2. Judicious use of a separate channel equalizer. Necessary to reduce inevitable upper midrange peaks (shrill) exacerbated by close-in walls, even with treatment (especially at higher volume levels) as well as provide the bass control mentioned above.

A smaller room can cause greater differences than amplifier and even speaker selection as you know. Let me know how it works for you!

Or you could go digital and put in a DSP and never look back. It kind of eliminates the analogue part all together. :)