In our Annual Summary of Tax Law Changes, we have included changes that may affect your 2011 tax filing, tax provisions that will expire after 2011, and changes that will affect your 2012 taxes. Hopefully this will help you with some last minute tax planning for 2011 and projections beyond 2011. We expect some significant changes to the tax code in 2012 and 2013. We’ll keep you posted.

 

Important changes to your 2011 tax filing

Individuals

Any taxpayer electing not to have his tax return filed electronically must sign and submit Form 8948, “Preparer Explanation for Not Filing Electronically”.

One-half of any Roth conversion made in 2010, must be reported on the 2011 income tax return unless an election was made to have it all taxed in 2010.

U.S. taxpayers holding foreign financial assets outside of the United States with an aggregate value exceeding $50,000 must report these assets on new Form 8938, “Statement of Specified Foreign Financial Assets”, and attach it to their 2011 federal income tax return.

All 2011 sales of  stocks, bonds, and mutual funds will need to be reported in detail on new Form 8949, “Sales and Other Disposition of Capital Assets”. The totals will be rolled-up to Schedule D.

If Form 8332, “Release of Claim to Exemption for Child by Custodial Parent” is used, it must be attached to the tax return.

Taxpayers must have contemporaneous written acknowledgement for charitable contributions over $250.

Small Business

The business mileage deduction for 2011 was $0.51 from 1/1/11 through 6/30/11 and $0.55 after 7/1/11.

Cell phones were removed from the definition of listed property to simplify record keeping.

Owners who accept credit/debit cards for their business can expect to receive a Form 1099-K, Merchant Card and Third Party Network Payments”, from the credit/debit card processor showing the amount collected in 2011. This information will need to be entered separately as an income item on the business tax return.

Healthcare Act changes affective for 2011

Over-the-counter medicines are no longer eligible under a Flexible Spending Account (FSA) or Health Savings Account (HSA). Prescription medicines and other medical supplies are still acceptable.

The penalty for non-qualified distributions from an HSA account has increased to 20%.

 

Summary of tax provisions expiring in 2011

Individuals

Once again set to expire at the end of 2011 is the deduction for qualified secondary education expenses up to $4,000 for AGIs up to $130,000 ($65,000 for single filers) or up to $2,000 for AGIs up to $160,000 ($80,000 for single filers).

The Alternative Minimum Tax (AMT) exemption amount currently at $74,450 for joint filers and $45,000 for single filers will decrease in 2012 to $48,450 and 33,750, respectively.  This has been a hot political potato for the last few years, with Congress and the President agreeing to increase the exemption on an annual basis.  Given that the 2012 election process has already begun and as of this writing the Congressional Super Committee has been unable to reach a consensus on the budget, the exemption amount may not be increased in 2012.

In 2012, nonrefundable personal credits, such as the dependent care credit and the elderly and disabled credit will no longer be available to offset the AMT liability.

The provision allowing for nontaxable IRA distributions to a charity, up to a maximum of $100,000 expires at the end of 2011.

The $250 “above the line” deduction for educators’ classroom expenses is due to expire at the end of 2011.

The credit for an energy efficient home and for energy efficient improvements, reduced to a total credit of $500, based on 30% of the cost of the materials, is set to expire at the end of 2011.  If $500 or more of the credit has been used in 2009 or 2010, the 2011 credit is not available.

The credit for Electric Vehicle Credit for Low-Speed Vehicles, Motorcycles, and 3-Wheeled vehicles, of 10% of the purchase price up to $2,500, is available through the end of 2011. The credit for electric vehicle conversion kits is also expiring at the end of 2011.

Up to the end of 2011, taxpayers have the ability to rollover funds from a Flex-Spending Account (FSA) or a Health Reimbursement Account (HRA) to a Health Savings Account (HSA). 

Expiring at the end of 2011 is the ability to utilize state sales tax instead of state income tax as a deduction on Schedule A.  This will make a huge difference for taxpayers that live in states with low or no state income tax – and those that are planning the purchase of high-ticket items subject to sales tax, such as motor homes, boats, and luxury vehicles.

Those who purchased a home with less than a 20% down payment, may have been required to pay mortgage insurance premiums. These previously deductible premiums are set to expire at the end of 2011.

The 2010 Tax Relief Act provided for a reduction in an employee’s social security withholding from 6.2% to 4.2%, providing a little extra cash flow every month.  Unfortunately, this tax benefit expires at the end of 2011 unless extended by Congress.

Small Business

Internal Revenue Code Section 179 is often used by small business to expense equipment purchased during the year.  Through 2011, the maximum amount allowed to be expensed is $500,000 with a total capital expenditure of $2,000,000.  In 2012, the maximum deduction for the purchase of equipment in one year is $139,000 with the maximum capital expenditure limited to $560,000.

The 100% bonus depreciation is also due to expire at the end of 2011.

 

2012 inflation adjustments for various tax items

Personal exemptions increase from $3,700 to $3,800 per person.

The annual gift exclusion remains unchanged at $13,000 per donee.

The elective deferral limit for employees participating in 401(k), 403(b) or 457(b) plans increase from $16,500 to $17,000 per year.

The Social Security wage base increases from $106,800 to $110,100.

The standard deduction for joint and single filers increases to $11,900 and $5,950, respectively.

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Filed under: Taxes