CCH Reviews Changes Taxpayers Will See for 2011 Tax Season
RIVERWOODS, Ill., Jan. 4, 2012 /PRNewswire/ -- The good news is that 2011 ended without many last-minute tax law changes that would have introduced uncertainty into this year's income tax filing season, according to CCH, a Wolters Kluwer business and a leading provider of tax, accounting and audit information, software and services (CCHGroup.com).
That said, there are still plenty of changes that taxpayers should be aware of as they get ready to do their taxes this year, according to CCH Principal Federal Tax Analyst Mark Luscombe, JD, LLM, CPA.
Following are highlights of tax provisions that will impact the 2011 tax filing season.
Provisions specific to individual taxpayers include:
-- First installment of taxes owed on 2010 Roth conversions. Individuals
who did a Roth conversion in 2010 and elected to spread the tax payment
over 2011 and 2012 will have to pay one-half of the tax owed on their
2011 income tax return. However, if a taxpayer took a distribution in
2011 from their 2010 Roth conversion, they may be required to pay more
to cover taxes on the distributed amount. Also, tax on any additional
conversions done in 2011 will have to be included on the 2011 tax
return.
-- Changes to Form 1040. Changes affecting the 1040 include a new line
(Line 59b) for repayment of the First-Time Homebuyer Credit. The
repayment installment can be entered directly on Line 59b without the
use of Form 5405 if the taxpayer continued to own the home and use it as
their main home throughout 2011. In addition, there is no longer a line
on the Form 1040 for the Making Work Pay Credit, which expired at the
end of 2010.
-- Changes for investors in reporting basis. Investors will see that Form
1099-B has been revised to provide for their broker to report the basis
of transactions during the year. The IRS will check to see that this
information matches the basis reported on the taxpayer's return.
Additionally, these transactions should now be reported on the new Form
8949, rather than directly on Schedule D.
-- Carryover basis on inherited assets may be lower than expected for some.
Taxpayers who inherited assets where the estate elected to use the 2010
estate tax repeal option will receive a Form 8939 in January or February
from the estate executor providing the basis information for those
assets. Estates that used the 2010 estate tax repeal option will use as
the basis the basis of the asset in the hands of the decedent, or
carryover basis, unless a limited stepped-up basis is allocated to that
asset. This carryover basis is often significantly less than the
stepped-up basis - or the value of the asset at the time of the
decedent's death. "An heir of a 2010 estate using the 2010 estate tax
repeal option who sold the asset before receiving the Form 8939 may be
surprised at the amount of capital gain owed from the sale," Luscombe
noted.
-- New requirements for reporting foreign assets. Foreign Account Tax
Compliance Act (FATCA) reporting requires foreign assets to be reported
if they have a total value of more than $50,000 ($100,000 if married
filing jointly). FATCA is broader than what is defined under the Report
of Foreign Bank and Financial Accounts (FBAR). For example, FATCA
includes stock or securities issued by someone other than a U.S.
"person," any interest in a foreign entity, and any financial instrument
or contract that has an issuer or counterparty other than a U.S.
"person." In addition to the prior obligation to report FBAR accounts
on Form TDF90-22.1, FATCA must now be reported on a new Form 8938.
In addition, two tax changes broadly affecting employers include:
-- New W-2 reporting of employer-sponsored health care coverage. Although
it is only optional for Form W-2s issued in 2012 (becoming mandatory in
2013 under the health care reform legislation) some employees may
receive W-2s for 2011 that include new code (DD) in Box 12 and amount
for employer-sponsored health care coverage. This provides the IRS with
information to determine if the employer and employee have complied with
the health insurance mandates of health care reform. However, as those
mandates are not yet in effect, this added information on the W-2 does
not impact 2011 federal tax return filing requirements.
-- Employee retention credit. This credit related to 2010 hiring, however,
it required retaining the employee for at least 52 weeks to qualify for
the credit, thereby moving eligibility for the credit to 2011 tax
returns. To qualify for the credit, the employer must have paid wages in
the last 26 weeks equal at least to 80 percent of the wages for the
first 26 weeks. The credit is claimed on Form 5884-B and is the lesser
of $1,000 or 6.2 percent of the retained worker's wages during the
period.
Additionally, taxpayers should know about two new regulations affecting tax preparers for 2011:
-- E-filing mandate. Starting with tax returns filed in 2012, tax preparers
must e-file if they are filing 11 or more returns. This is up from more
than 100 returns for the last filing season. There are limited
exceptions: clients may in writing instruct their preparer that they
want to opt out of e-filing; and a preparer can apply to opt out due to
hardship by notifying the IRS via Form 8944.
-- Tax preparer exam. The IRS now requires paid tax preparers other than
attorneys, CPAs and enrolled agents, to take and pass an exam. These
preparers have until December 31, 2013 to pass the test.
Additionally, CCH provides ongoing analysis of new laws through tax briefings at CCHGroup.com/legislation.
About CCH, a Wolters Kluwer business
CCH, a Wolters Kluwer business (CCHGroup.com) is the leading global provider of tax, accounting and audit information, software and services. Follow us on Twitter @CCHMediaHelp. Wolters Kluwer (www.wolterskluwer.com) is a market-leading global information services company.
SOURCE CCH, a Wolters Kluwer business