Due to the final hour December 17 2010 Tax Relief Act, many of the provisions set to sunset have been extended through the 2011 tax year and thus the landscape of tax reporting and preparation remains relatively consistent for the year. However, below is a list of items individuals should be aware of when preparing their 2011 income tax return.
• Due date: The tax return due date has been extended until Tuesday April 17th for the 2011 tax season.
• First Time Homebuyer Credit: If you took advantage of the First-Time Homebuyer credit during a period where repayment was required; the payment due must be reported on Line 59b of your Form 1040.
• The Making Work Pay Credit expired as of 12/31/10
• Sales of Investments: There have been extensive changes to the way in which sales of investments are reported. The reporting requirements have become more complex and demand more information. In order to comply with new requirements, transactions must be reported on multiple Forms 8949 rather than directly on Schedule D. Your tax preparer will require all 1099s in order to properly report your transactions. If you have prepared your own return in the past, the new requirements may be reason enough to have a “tax check-up” this year and allow a preparer to guide you through the changes.
• Energy Credit: There is a credit available for 2011 equal to 10% of eligible energy-saving improvements. The maximum credit is $500. Note that if you took advantage of energy credits in 2006, 2007, 2008, 2009 or 2010 these credits must be subtracted from your potential 2011 credit. Therefore, unless you are making energy efficient improvements for the first time in 2011, it is unlikely that you will be able to take advantage of this credit.
• Standard Mileage Rates: Mileage rates were 51 cents for miles driven January through June of 2011 and 55.5 cents a mile for the remainder of the year. Therefore, you must supply mileage based on these periods.
Mileage as part of a deductible move was 19 cents per mile for the first six months of 2011 and 23.5 cents per mile for the remainder of the year. Charitable miles may be deducted at 14 cents a mile for all 12 months of the year.
• Roth Conversions: If you did a Roth Conversion in 2010 and elected to spread the respective tax liability over 2011 and 2012, the first half of that payment will be due with your 2011 return.
• Inherited Assets: If you inherited assets from an estate that elected to take advantage of the 2010 estate tax repeal option, you will receive a From 8939 from the executor providing your basis for these assets. Taking advantage of the estate tax repeal option will typically cause assets to be passed to you at a carryover basis; that is the basis in the hands of the decedent. Therefore, if such inherited assets were sold during the year; your gain and hence your tax liability may be higher than you anticipated.
• Educator Expenses: Educators are allowed to deduct $250 of out of pocket expenses in 2011.
• Health Savings Accounts and Medical Savings Accounts: If you take distributions from these accounts that are NOT used for qualified medical expenses, the additional tax penalty for 2011 will be 20%.
• Foreign Assets: Another area of tax reporting that has become more onerous for 2011 is the disclosure of foreign assets. The Foreign Tax Compliance Act requires foreign assets to be reported if they have a total value of more than $50,000. Assets include stock or securities, interest in a foreign entity, financial instruments or contracts, homes, land etc.
• Alternative Minimum Tax: Exemptions Increased in 2011 to $74,450 married filing a joint return; $37,225 married filing separately and $48,450 single.
• Phase outs – there is no adjusted gross income phase out of itemized deductions or personal exemptions in 2011.
For Massachusetts taxpayers:
• Student Loan Interest: Massachusetts has its own student loan interest deduction for undergraduate interest that must be separately entered on the Massachusetts return.
• Commuter Deduction: The Massachusetts commuter deduction is the amount of qualified commuting expenses in excess of $150 but not more than $750 and includes MBTA passes.
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