Phone: 860-456-2297 Fax: 860-456-3954 Email: shanen@snet.net
Frequently Asked Questions
Tax Changes for Individuals in
2011
Do I Have to File a Tax Return?
Necessary Items for Tax Return
Preparation
Using Capital Losses to Reduce
Taxes
Links To Helpful Internet Sites
Do I Have to File a Tax Return?
There are some instances when you may not be required to file a federal income tax return. But keep this in mind – more than 70 percent of those who file are due a refund, so it may be to your advantage to file even if you are not required to.
The law does require you to file a tax return if your income is above a certain level.
Here are some general guidelines for anyone under age 65. Remember, these guidelines may change based on your particular situation. In general, once you have the following gross income amounts, the law requires you to file a federal tax return with the IRS:
For 2011:
Single – $9,500
Head of Household – $12,200
Married Filing Jointly – $19,000
Married Filing Separately – $3,700
Surviving Spouse – $15,300
Generally, a person who is self-employed must file a tax return if his or her net earnings from self-employment for the year exceed $400.
Even individuals who don't earn enough to be required to file a tax return may be eligible for an earned income credit. However, you must file a return to receive the Earned Income Tax Credit. You must also file a return if you received any advance payments of this credit while you worked during the year.
The IRS site to help you calculate if you need to file is: http://www.irs.gov/individuals/article/0,,id=96623,00.html
A tempting tax window opened in 2010 for many individuals with IRA accounts. In 2011 anyone, regardless of income, can convert any tax-deferred IRA into an after-tax Roth IRA. Prior to 2010 you had to have a modified adjusted gross income of $100,000 or less to convert a traditional IRA to the Roth kind.
Roth IRAs are attractive for a number of reasons. They're funded with after-tax money, so you'll owe no tax on distributions as long as you're at least 59 1/2 and the account is at least five years old. If your investment and tax rates rise in the future you could save by paying tax now on a distribution from a regular IRA and converting it to a Roth. And unlike with a traditional IRA, you don't have to take required minimum distributions from a Roth after you reach age 70 !/2.
Consider converting if 1) You expect to be in a higher tax bracket in retirement, 2) You have a long time horizon and 3) You can pay the tax on the IRA distribution from other accounts.
Tax Changes for Individuals in 2011
The IRS standard mileage rate is higher for the last 6 months of 2011 than for the first 6 months. The rate for business expenses is 51 cents for the first half year and 55.5 for the last.
The rate for medical and moving expense is 19 cents for the first half year and 23.5 for the last.
The rate for charitable volunteers remains at 14 cents for the entire year.
Self-employment Tax DeductionIn prior years, 50% of the self-employment tax was the amount of the above-the-line deduction that could be claimed on Form 1040 but for 2011 a special computation applies and the deduction is larger. See the IRS web site for the computation guidelines.
Higher Standard Deductions
For 2011, the standard deduction is $11,600 for married persons filing jointly or qualifying widows,
$8,500 for heads of households,
$5,800 for single taxpayers or married filing separately.
The additional standard deduction is $1,450 for taxpayers over 65 or blind who file as Single or Head of Household and $1,150 for Married taxpayers.
Form 8949 is a new form for reporting 2011 sales of capital assets that is attached to Schedule D. After entering short-term transactions in Part 1 of Form 8949 and long-term transactions in Part II, the total sales price and basis amount are transferred to Schedule D where net gain or loss is figured.
If you acquired stock in 2011 and sold it before the end of the year, your broker must report your cost basis for the securities in Box 3 of Form 1099-B. In Parts I and II of Form 8949, you must enter a code to indicate whether your basis for sold securities was reported to you by your broker.
For 2011, the credit for energy efficient home energy improvements such as storm windows, insulation, furnaces, and water heaters is reduced to 10%, with an overall limit of $500 that is reduced by prior year credits, plus specific property limits such as $200 for exterior windows and $150 for a furnace.
First-Time Homebuyer Credit
For 2011 the credit for a home purchase by a first-time homebuyer or long-time resident is allowed only to members of the US uniformed services that meet certain service rules.
IRA and Roth IRA Contributions
For 2011 the contribution limit for traditional IRA and Roth IRA remains at $5000 or $6000 for those age 50 or older.
The deduction limit for 2011 contributions to a traditional
IRA is phased out with MAGI of over $56,000 and under $66,000 for single and
head of household or over $90,000 and under $110,000 for joint filers.
The 2011 ROTH IRA contribution limit is phased out at $107,000 and under $122,000 for single and head of household. For married filers it is over $169,000 and under $179,000.
Reporting of 2010 Conversion to Roth IRA
If you converted a traditional IRA to a Roth IRA in 2010, and you chose on the 2010 Form 8606 to use the special two-year deferral rule for 2010 conversions, you must report half of the 2010 conversion income as a taxable IRA distribution for 2011. The other half will be reported as a 2012 distribution.
FSA Reimbursment Restriction
Starting in 2011, a health flexible spending arrangement cannot make a tax-free reimbursement of an over-the-counter medication other than insulin unless a physician has provided a prescription for it.
Discontinued Credits
The Hybrid Vehicle credit and the Make Work Pay credit have expired.
Almost everything you own and use for personal purposes, pleasure or investment is a capital asset. The IRS says that when you sell a capital asset, such as stocks, the difference between the amount you sell it for and your basis, which is usually what you paid for it, is a capital gain or a capital loss. While you must report all capital gains, you may deduct only your capital losses on investment property, not personal property.
A "paper loss" - a drop in an investment's value below its purchase price - does not qualify for the deduction. The unused amount of the loss must be realized through the capital asset's sale or exchange.
Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.
If your capital losses exceed your capital gains, the excess is subtracted from other income on your tax return, up to an annual limit of $3,000 ($1,500 if you are married filing separately). The loss can be carried forward to later years to reduce capital gains or ordinary income until the balance of these losses is used up.
For taxpayers with a top bracket of 10% or 15%, a 0% rate applies to eligible gains/dividends, making them tax-free. Taxpayers in higher tax brackets are subject to a 15% rate on eligible gains/dividends.
Recapture Gain on Real Estate-25%
Most Collectibles-28%
Using Capital Losses to Reduce Taxes
Taxpayers may be able to use their losses in the stock market to reduce their tax burden.
Generally, realized capital losses are first offset against realized capital gains. Any excess losses can be deducted against ordinary income up to $3,000 ($1,500 if married filing separately) on line 13 of Form 1040.
Losses in excess of this limit can be carried forward to later years to reduce capital gains or ordinary income until the balance of these losses is used up.
Capital gains and losses on the sale or trade of investments are classified as either short-term - if the property has been held for one year or less - or long-term on Schedule D of Form 1040. Though these two categories of capital gains and losses are subject to different rates in the event of a net gain, a net capital loss resulting from either category is directly deductible from ordinary income up to the annual limit.
This provision of law often works to the taxpayer's advantage, yielding greater relief for losses than if an applicable long-term capital gains tax rate were used. Generally, capital gains rates are lower than the rates on ordinary income.
For example, if a taxpayer in the 25-percent bracket had a net long-term capital gain on stocks of $2,000, the tax due from the gain would be calculated at the 15-percent capital gains rate for a total of $300.
But if the same taxpayer has a net long-term capital loss of $2,000, the corresponding tax savings would be calculated at the individual's ordinary rate of 25 percent, for a $500 reduction in taxes.
A "paper loss" - a drop in an investment's value below its purchase price - does not qualify for this deduction. The loss must be realized through the asset's sale or exchange.
The IRS will allow you to begin a refund trace online if you have not received your check within 28 days from the original IRS mailing date. Some of you will also be able to correct or change your mailing address within this application if your check was returned to the IRS as undelivered by the U.S. Postal Service. “Where’s My Refund?” on the IRS site will prompt you when these features are available for your situation. https://sa2.www4.irs.gov/irfof/lang/en/irfofgetstatus.jsp
To get to your refund status, you'll need to provide the following information as shown on your return:
-Your Social Security Number (or IRS Individual Taxpayer Identification Number)
-Your Filing Status, (Single, Married Filing Joint Return, Married Filing Separate Return, Head of Household, or Qualifying Widow(er))
-The Refund amount (It is important to enter the refund amount exactly as it is shown on your return in order for the computer system to retrieve your data)
Necessary Items for
Tax Return Preparation
The most common items needed in order to prepare your tax returns are as follows. Other specific information may also be required.
Contact
information such as home/work phone numbers or email addresses.
Please
provide the following information for you and all your dependents:
---Full legal name
---Social Security number
---Date of birth
---Current address
---Relationship to taxpayer
All
W-2 Wage information forms for the current tax year.
All
1099 Forms for the current year reporting miscellaneous income, rental income,
interest income, dividend income, retirement income, capital gains, gambling
winnings etc.
Documentation
of any other sources of income such as Social Security, alimony, unemployment
compensation etc.
All
K-1 forms you may receive.
All
Business related income and expenses.
A
list of any education expenses for you and each of your dependents.
All
1098 Forms for mortgage interest payments for the current tax year.
Any
property taxes paid in the tax year with address of real estate property and/or
vehicle description.
Any
charitable contributions made during the tax year for which you have the
required receipts.
A
list of all estimated taxes paid with dates and amounts of payments for both
federal and state.
If
you are a new client we will need a copy of your prior year federal and state
tax filing if you were required to file.
Any
deductible childcare costs with daycare provider information.
Any
IRS or state tax related correspondence received during the year.
Estate tax may apply to your taxable estate at your death. Your taxable estate is your gross estate plus previously taxable gifts less allowable deductions.
Gross Estate:
Your gross estate includes the value of all property in which you had an interest at the time of death. Your gross estate also will include the following.
Life insurance proceeds payable to your estate or, if you owned the policy, to your heirs.
The value of certain annuities payable to your estate or your heirs.
The value of certain property you transferred within 3 years before your death.
Trusts or other interests established by you or others in which you have certain powers.
Taxable Estate:
The allowable deductions used in determining your taxable estate include:
1) Funeral expenses paid out of your estate,
2) Debts you owed at the time of death, and
3) The marital deduction (generally, the value of the property that passes from your estate to your surviving spouse).
4) Estate administration expenses.
Your taxable estate also includes the addback of any taxable gifts.
The gift tax applies to the transfer of a full or partial interest by gift of any property. You make a gift if you give property (including money), or the use of or income from property, without expecting to receive something of at least equal value in return. If you sell something at less than its full value or if you make an interest-free or reduced interest loan, you may be making a gift.
The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. Generally, the following gifts are not taxable gifts.
Gifts of a present interest that are not more than the annual exclusion for the calendar year.
Tuition or medical expenses you pay for someone (the educational and medical exclusions).
Gifts to your spouse.
Gifts to a political organization for its use.
Gifts to qualified charities (a deduction is available for these amounts).
Annual Exclusion:
A separate annual exclusion applies to each person to whom you make a gift of a present interest in the property. For 2011, the annual exclusion is $13,000. Therefore, you generally can give up to $13,000 each to any number of people and none of the gifts will be taxable.
If you are married, both you and your spouse can separately give up to $13,000 to the same person in without making a taxable gift.
