10 New 2011 Tax Laws

10 New Tax Laws That May Affect You

The good news for taxpayers working on their 2011 tax returns is there aren’t many major surprises this filing season.

“It’s not too significant a year in that there’s not a lot of uncertainty,” says Mark Luscombe, principal federal tax analyst at CCH in Riverwoods, Ill. The Bush-era tax laws were extended through 2011 and 2012, so taxpayers generally know what to expect when it comes to how much they’ll owe.

But just how you get to your final tax bill could be different. Some other tax changes, many slipped into legislation years earlier, are taking effect with 2011 filings. And the Internal Revenue Service has revised or added forms to help it collect what it says we owe.

These tax law changes could help some filers pay a lower tax bill. Or they could cost others a few more tax dollars.

Either way, every taxpayer needs to be aware of them. Here’s what to look, or look out, for as you work on your 2011 Form 1040.

When is the Tax Deadline in 2012?

A key change for this filing season has nothing to do directly with tax laws. Thanks to 2012 calendar quirks, taxpayers get three extra days to finish their returns.

The usual April 15 tax return filing deadline is Sunday. That normally would mean the deadline would fall on the next business day.

But Monday, April 16, is Emancipation Day. And that’s a holiday in the District of Columbia. Because the Internal Revenue Service is headquartered in D.C., any holiday in the nation’s capital applies to all tax filings nationwide.

So while D.C. is typically the target of wrath when taxpayers encounter tax problems, the District deserves some thanks this year for two extra days to file.

And the third extra day? That comes via Feb. 29 because 2012 is a leap year.

New Form to Report Capital Gains, Losses

While the Bush-era low capital gains tax rates remain in effect, the way many taxpayers will report these earnings has changed.

Taxpayers in the 10% and 15% income tax brackets still won’t owe any tax on their asset sale profits. But taxpayers in the four higher tax brackets will pay a 15% rate, and they now must record those capital gains or losses on the new Form 8949 for the 2011 tax year.

The IRS also has revised the Schedule D on which the final tax information is entered.

The new and revised forms were created to help the IRS better compare your asset sale filing with the information the tax agency receives from brokers and other money managers. Essentially, the extra work for you will let the IRS know you are properly accounting for all of your investment transactions and paying the appropriate amount of tax.

Form 1099-B Helps Investors Track Basis

The trend for added tax reporting, especially when it comes to investments, continues with another new tax statement: Form 1099-B.

One of the most frustrating things for taxpayers who sell assets is determining the property’s basis. Basis reflects your total investment in a property, including purchase price and improvements. It’s subtracted from the property’s sale price, and the difference determines the profit upon which your tax bill is based. Now at least some of those calculations should be a bit easier.

Beginning with the 2011 tax year, investors who sell some assets will get Form 1099-B, which is a new information-reporting tax document. If you sold a “covered security,” that is, a stock you bought on or after Jan. 1, 2011, that asset’s basis will be shown on the 1099-B.

You’ll still have to find the data for basis for assets purchased before 2011. But for this filing season, as well as future tax years when more investment activities will be covered by expanded information reporting rules, figuring the tax due on some property sales will be easier.

Form 1099-K Helps Track Taxpayer Income

Form 1099-K is another new form that’s part of expanded IRS efforts to track taxpayer income.

Companies that process credit and debit cards as well as third-party network payments (PayPal, AmazoneBay and the like) now must report the gross amount of those payments to merchants on 1099-K and copy the IRS.

There is an exception for smaller businesses. If the payment transactions are fewer than 200 and total less than $20,000, the 1099-K reporting is not required.

And because of concerns about confusion with the new form, the IRS has deferred the requirement that taxpayers report 1099-K amounts on 2011 taxes. But this attempt to make things easier could backfire.

Filers of business returns, including Schedule C used by sole proprietors, will see a new line on their applicable tax returns for 1099-K income. But the business returns’ instructions say to enter zero on the line designated for reporting 1099-K amounts and instead report such earnings on the line for all gross receipts.

If you do get a 1099-K, be sure to carefully follow the new form’s reporting rules so the income is entered properly on your tax return.

Health Care Data on Your W-2

Careful readers of Form W-2 might notice a new entry in box 12 of this annual income statement. As part of the new health care law, the amount of your workplace-provided health care benefits will show up here.

Don’t panic. The code DD next to the amount indicates that the amount is not taxable income.

The entry is informational only, for you as well as the Internal Revenue Service. The IRS will use this data to help it enforce future health care law provisions.

First-Time Homebuyer Tax Credit Payback

This is not new, but it’s still an issue for homeowners who claimed the first-time homebuyer tax credit in its original form.

The Housing and Economic Recovery Act of 2008 established this tax credit of $7,500, but it was not a true credit. It was a no-interest loan from Uncle Sam that must be repaid in 15 equal, annual installments. Payback began with 2010 income tax returns filed last year.

For this second year of repayment, the process has been streamlined a bit for many taxpayers. If you bought your home for which you claimed the credit in 2008 and owned and used it as your main home for all of 2011, you can enter your 2011 repayment amount directly on the Form 1040 without attaching Form 5405.

Let’s hope this change also will help lessen the processing problems encountered last year. In the previous filing season, many homeowners saw their refunds held up because of IRS difficulties in dealing with the repayment provision.

Roth Conversion Payback

If you converted a traditional IRA to a Roth IRA in 2010, you probably elected the default tax payment option in connection with your retirement plan conversion.

That choice allowed you to defer the IRA conversion tax last year and spread payment of it over two future years. Half of that payment is now due.

You must report half of the taxable IRA conversion amount on your 2011 return. The remainder will be reported and paid on your 2012 return.

What if you have some extra cash and want to pay all the IRA conversion taxes on your 2011 return? Sorry. You are stuck with the two-year payback. So stash that money in an interest-paying account so you’ll have it (and a bit more) for your 2012 filing.

Calculating 2 Mileage Rates

If you used an auto for business travel last year and plan to claim the standard mileage deduction, be sure to pay attention to when you took the trips. High gasoline prices in 2011 prompted the IRS to increase the deduction rate at midyear.

The mileage rate for business use of a vehicle was 51 cents per mile from Jan. 1, 2011, through June 30, 2011. On July 1, 2011, the rate increased to 55.5 cents a mile.

This type of tax deduction change is why good tax record keeping is so important.

Schedule B

The IRS has made a concerted effort in recent years to track down money individuals stash in foreign accounts, or as the IRS refers to them, offshore accounts.

To this end, the agency made some changes to Schedule B, the form used to report interest and dividend earnings.

This tax filing year, the IRS is asking more questions on Schedule B and requiring some foreign account holders to file a new document, Form 8938.

The foreign account reporting thresholds for the new form vary, depending on whether a taxpayer lives in the United States or files a joint income tax return with his or her spouse. The specifics can be found in the Form 8938 instructions — or in your tax software or from your tax professional.

If you must report a foreign account, don’t even think about ignoring the IRS filing. The penalty for failure to file or for submitting an incorrect Form 8938 starts at $10,000.

Schedule L and Schedule M Are Gone

Don’t look for Schedule L or Schedule M tax forms this year. Neither applies to 2011 taxes.

Schedule L previously was used to figure additions, such as property tax or auto sales tax payments, to a taxpayer’s standard deduction. These tax claims weren’t allowed in 2011, so Schedule L is no longer in use.

Similarly, the Making Work Pay tax credit expired in 2010 and was replaced by the 2 percentage point cut in the employee payroll withholding tax. Just like the Schedule L, Schedule M is gone when it comes to 2011 tax

Source: Fox Business 

Last Minute Tax Savings For 2011

Happy New Year!

With all the uncertainty the still remains regarding the tax code for 2011, there is still some steps you can take to help save or off-set some taxes.  Here are 5 tips from small business advocate Barbara Weltman to help you out before the apple drops on 2011:

1. Don’t bill yet for work you’re doing now. Typically you’d send an invoice as quickly as possible, but Weltman suggests at this point, for tax purposes, you “consider waiting until the end of the year to send it. This will ensure payment is received in 2012, and taxes on the income are deferred for another year.” One caveat, according to Weltman, is if you expect to be subject to the alternative minimum tax (AMT) in 2011. If so, the opposite approach may make more sense — bill immediately to receive the income in 2011, so “your income will be taxed at no more than 28 percent under the AMT vs. a regular tax rate of up to 35 percent,” Weltman says.

Another factor to keep in mind: If you have any concerns about getting paid, it’s not worth it to delay invoicing just for the tax benefits. “The sooner you start collections,” Weltman says, “the more likely you’ll receive all that you’re owed.”

2. Buy office supplies before the end of the year. Assuming you have the space to store it, try to stock up on the paper, toner or other office supplies you project to use throughout 2012. “Order them now so that the cost is deductible in 2011,” Weltman says.

Weltman says an exception to this deduction is prepaid expenses for something that extends beyond the end of next year. For example, if you prepay a three-year subscription to a trade journal or renew a three-year membership to a trade association, that cost is deductible over three years, not just in 2011.

3. Invest in a qualified retirement plan. “If 2011 is expected to be profitable and you don’t yet have a qualified retirement plan, sign the paperwork to establish one for your business before the end of the year,” Weltman says. “You’ll then have until the extended due date of your return to fund the plan.”

Weltman suggests you talk to a brokerage firm, mutual fund or other financial institution about what you need to do to adopt the plan for 2011. Find more information about qualified retirement plans in IRS Publication 560 (while it has not yet been updated for contribution and benefit limits in 2011, the general rules continue to apply).

4. Splurge on equipment. Want an iPad? Need more office computers? Tempted by the after Christmas sales? According to Weltman, if you buy the equipment and start to use it in your business before the end of the year, you can claim a full-write off. The write-off is available whether you finance the purchase in whole or in part. Here’s what Weltman says you need to do to get this deduction:

    • Use the Section 179 (“expensing”) deduction for pre-owned property. This write-off is allowed only if you are profitable. The dollar limit on purchases for 2011 is $500,000.
  • Use 100 percent bonus depreciation for new property, whether or not you are profitable. The write-off of the entire cost of eligible property can create or increase a net operating loss, which can mean a refund of some or all of the taxes paid in the prior two years.

5. Settle up your accounts payable. “You may have bills piled up that are not due until 2012 — if you pay them now, you can deduct the expenses in 2011,” says Weltman. If you don’t have the funds in your bank account at the moment, Weltman says you should consider putting the expenses on your business credit card if the vendor or other party allows it. Costs charged to a major credit card before the end of the year are deductible this year even though the credit card bill isn’t due until 2012.

Though you may be tight on time, Weltman says you shouldn’t skip one more important step: “Contact your CPA or other tax advisor immediately to discuss whether these or other last-minute actions make sense for your tax situation,” she says.

If you would like any last minute advice, contact an R&G Brenner representative today!

Source: Huffington Post