New Tax Laws for 2012 Tax Season
By Rafique S. M. Ahmed
The Congress did not pass any major tax legislation in 2011 except repealing the controversial law passed in 2010 related to the information reporting requirement for most business payments and rental expense payments aggregating $600 or more to any one vendor. However, the situation will change in the Election year of 2012 and major changes are likely to take place due to the sunsetting of the Bush-era tax rates. The expiring provisions at the end of 2011 include among others, 100 percent bonus depreciation, a payroll tax reduction, a higher AMT exemption, higher education expense deduction, non-business energy credits, optional itemized deduction for state and local sales tax, classroom expense deduction and the nontaxable charitable contribution of IRA assets by those over age 70 1/2.
2011 is the year of regulatory enforcement by the Internal Revenue Service. The Preparer Tax Identification Number (PTIN) registration is just the start by the IRS to provide standards for and oversight of the tax preparation industry. The PTIN must be used by all paid tax return preparers who must renew their PTINs annually to legally prepare tax returns. Certain preparers also must pass a competency examination, undergo a suitability check and complete continuing education courses annually.
New e-file mandates are also in effect for filing season 2012. Preparers who will prepare eleven or more federal individual or trust tax returns during the year are required to file their returns electronically. Preparers must be approved and authorized by the IRS as "e-file providers" in order to use IRS e-file system. In accordance with the IRS regulations, authorized IRS e-file providers cannot submit electronic returns to the IRS until they have received all W-2, W-2G, and 1099-R forms from the taxpayer.
The following are the significant changes that may affect your 2011 tax returns:
- The 2012 tax season officially starts on January 17, 2012 when the IRS begins receiving electronically filed 1040 returns. However, the due date for Forms 1040 is extended to April 17, 2012 instead of April 15, since April 15 is a Sunday and April 16 is the Emancipation Day holiday in the District of Columbia.
- The IRS has modified the old Schedule D, Form 1040 to report Capital Gain(Loss) Sales and has added a new Form 8949, "Sales and Other Dispositions of Capital Assets," to accommodate the new basis reporting rules Congress passed back in 2008 and are now in effect. The new modified Schedule D becomes a summary page of all capital gain transactions which are now reported on the new Form 8949.
- The energy tax credit for home improvement has been reduced to 10% of the cost with a maximum of $500, down from 30% and a maximum of $1,500.
- Alternative minimum tax (AMT) exemption amount increased to $48,450 for single, $74,450 for married filing jointly or a qualifying widow(er) and $37,225 if married filing separately.
- The making work pay credit has expired eliminating the use of Schedule M.
- If you had foreign financial assets in 2011, you may have to file new Form 8938 with your return.
- Telecommunication devices such as cell phones, iPads and other communication devices used for business are tax-free fringe benefits to employees since employers may deduct the cost of such devices for business-related use.
- The American Opportunity Tax Credit was extended for an additional two years through December 2012. The education credit basically modifies and extends the Hope Credit.
- You may deduct qualified tuition and fee payments for college education for 2011 even if you don't itemize. The maximum credit is $4,000 per year.
- There are special incentives for employers for hiring unemployed veterans with a service-connected disability.
- Personal and Dependent Exemptions increased to $3,700 per person.
- Standard deduction has also increased.
- Foreign Earned Income exclusion increased to $92,900 for 2011.
- Standard mileage rates for business use increased to 51 cents per mile and 55 1/2 cents a mile after June 30, 2011. The mileage rate to get medical care or to move is also increased to 19 cents a mile and 23 1/2 cents a mile after June 30, 2011. In addition, effective January 1, 2011, you may use the business standard mileage rate for a vehicle used for hire, such as a taxicab.
- If you have to repay the first-time homebuyer credit, you may be able to do so without attaching Form 5405.
- First-time homebuyer credit for 2011 is available to the members or spouses if married of the uniformed services or Foreign Service or employees of the intelligence community on qualified official extended duty outside the United States for at least 90 days during the period beginning after December 31, 2008 and ending before May 1, 2010.
- If you adopted a child and paid out-of-pocket expenses relating to the adoption in 2011, you may be eligible for a Federal tax-credit on up to $13,360 of costs.
- Effective from 2011 tax year, employers are required to report the value of employee health insurance coverage provided by them on each employee's annual W-2.
- If you are self-employed and have a child aged 17 or younger working in your business, they may be exempt from FICA tax. This is also true for husband-wife partnerships and single-member LLC that elects to be disregulated for tax purposes. Even though the LLC is treated as a separate entity, your child's wages are not subject to the FICA payroll tax.
- The first-year depreciation limitation on 2011 vehicle depreciation stays the same as 2010 at $11,060 for new purchases and $3,060 for used.
- If you purchased a new business SUV during 2011 having a gross vehicle weight of over 6,000 pounds, you may be able to write-off 100% of the cost on your 2011 tax return as a limited-time 100% bonus depreciation.
- The IRS has increased the per diem rates for business travel. Effective from October 1, 2011 the 43 high-cost areas are up $9 to $242 a day for meals, lodging and incidentals and up $3 or $163 a day for low-cost areas. For meals and incidentals only, the rates remain at $65 in high-cost and $52 in low-cost areas. For businesses not wanting to use the high-low method, the IRS has prepared separate per diem rate calculations for hundreds of cities across America. Please refer to the IRS website for details.
- If you are filing a paper return, please ensure to mail to the correct IRS address since the IRS has changed the filing location for several areas throughout the United States.
(Rafique S.M. Ahmed is a professional Tax Accountant and has been providing accounting and tax services in California for more than thirty-five years. He is also an Authorized IRS Electronic Filing Provider, located at 1109 Via Verde, San Dimas, California 91773 and can be reached at (909)599-1412 or 599-1414.)