Tax season 2011 is almost around the corner, and taxpayers are facing many uncertainties for the future. Some important issues that will be addressed in the upcoming year include the presidential election, tax cuts due to expire, a reform to the tax system, and United States' debt reduction. For now, taxpayers can focus on the upcoming tax season. Some important tax tips from Melisa Labant, Director of the American Institute of CPA's are:
For the 2011 tax paying season, taxpayers will need to know:
- The filing deadline for 2011 falls on Tuesday, April 17th 2012.
- Mandatory cost-basis reporting for securities professionals (see below).
- Requirement to report foreign accounts under the Foreign Account Tax Compliance Act in form 8938 due on June 30th, 2011. Failure to file form 8938 carries a penalty fee of up to $10,000 every 30 days of noncompliance.
- Small business owners need to remember to provide 1099 forms when services services add up to $600 or more.
- Inflation adjustments are available at the IRS website at www.IRS.gov.
For the 2012 tax paying season, taxpayers will need to know:
- The requirement for securities professionals to report cost-basis: One can measure taxable income through doing a cost basis analysis. For example, if I purchased a share for $40 during 2010 and sold it at $80 on 2011, the basis is my original cost of $40, and the taxable gain is $40, the $80 selling price minus my original $40 investment. For 2012, the IRS is requiring taxpayers to report basis invested for mutual-funds and dividend-reinvestment-plan-holdings, which creates issues with the wash-sale rules for taxpayers who deduct their tax losses and regularly reinvest their dividends. Under the wash-sale rules, taxpayers who have losses from reinvesting their dividends within 30 days of purchase in the original investment will not be able to deduct their losses for that year.
- Charitable IRA donation was valid up to 2011: Tax exempt charities were allowed to receive up to $100,000 of gifted assets per annum from IRA owner's age 70 ½ and up. IRA owners do not get a deduction, but do benefit from not having the gifted amounts be added to their adjusted gross income, which in turn prevents a higher tax bracket for retirement benefits. IRA payouts can also be included in the donated amounts.
- IRS posted changes for 2012 include:
o The personal and dependent exemption is $3,800.
o The joint standard deduction is $11,900, and the single standard deduction is $5,950.
o The long-term capital gains limit for joint taxpayers at the 0% rate is $70,700 and lower, the 15% rate applies to any amounts over $70,700. The single taxpayers limit at the 0% rate is $35,350 and lower, the 15% rate applies to any amounts over $35,350.
- There is no alternative minimum tax (AMT) inflation adjustment.
- The 2012 transportation pretax benefits have been lowered from $230 to $125 per month. The parking cost benefits have been increased from $240 from $230 per month.
- The IRS has posted 2012 adjusted tax brackets due to inflation.
- 401(k) and 403(b) employee contributions to retirement plans amounts have increased to $17,000 from $16,500. Extra contributions for workers older than 50 remain the same.
- The Social Security tax maximum has been raised from $106,800 to $110,100 per annum.
- The estate and gift tax exemption has been raised from $5 million to $5.12 million per annum.
- Any other inflation adjustments are available at the IRS website at www.IRS.gov.
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