While the New Year ushers out a slew of federal tax provisions, a few new provisions also come into effect.
The Usual Inflation Adjustments
Inflation is the taxpayer's friend in 2012. From Revenue Procedure 2011-52, the taxable income for each tax bracket expands and the personal exemption rises to $3,800. The standard deduction rises to:
Married Individuals Filing Joint Returns
and Surviving Spouses $11,900
Heads of Households $8,700
Unmarried Individuals (other than Surviving Spouses
and Heads of Households) $5,950
Married Individuals Filing Separate
Returns $5,950
Contributions to retirement plans increase as well. From IR-2011-103, the elective deferral for 401(k), 403(b), most 457 plans, and the Thrift Savings Plan increases to $17,000. The catch-up contribution for the 50 and over crowd remains at $5,500 for plans other than those described in Section 401(k)(11) or Section 408(p). The annual compensation limit increases to $250,000 and the defined contribution limit rises to $50,000.
ROTH IRA and Traditional IRA contribution limits remain at the smaller of $5,000 or the amount of one's taxable compensation. The limit can be split between a traditional and ROTH IRA, but the combined amount cannot exceed $5,000. The 50 and over crowd can add an additional $1,000 for a maximum contribution of $6,000.
Modified adjusted gross income phase-out ranges for Traditional IRA's are as follows:
IRS.gov: Modified AGI Limits for Traditional IRA contributions if Covered By Retirement Plan at Work
IRS.gov: Modified AGI Limits for Traditional IRA contributions if NOT Covered By Retirement Plan at Work
Modified adjusted gross income phase-out ranges for ROTH IRA's are:
Married filing jointly - $173,000 to 183,000
Single and head of household - $110,000 to $125,000.
Married filing separate covered by retirement plan at work - $0 to $10,000.
The social security wage base rises to $110,100.
See Revenue Procedure 2011-52 for many more items.
Capital Gains and Losses
IRC Section 6045 was amended in 2008 to require brokers to report to the IRS and customers, the customer's adjusted basis in securities sold and to classify the gain or loss as short or long-term. The basis reporting applies to "covered securities," which basically means any security acquired after its corresponding applicable date. For 2011, the basis reporting rules covered corporate stock purchases, mutual funds and DRIP purchases will follow in 2012, and other financial instruments in 2013 (commodities, bonds, options, and so on).
Taxpayer's will notice a new form for 2011, Form 8949, "Sales and Other Disposition of Capital Assets," which will aide them in reporting the new Form 1099-B information. Schedule D will become a summary form with capital gain and loss information flowing from other forms.
Form 8949 will segregate capital gain and loss reporting to three categories:
1) When basis is reported in Box 3 of Form 1099-B
2) When basis is not reported on Form 1099-B (non-covered securities)
3) When no Form 1099-B is received
Veterans Work Opportunity Credits
The Three Percent Withholding Repeal and Job Creation Act, P.L. 112-56, extended the Work Opportunity Tax Credit and enhanced the name to Returning Heroes and Wounded Warriors Work Opportunity Tax Credit (has a more noble ring to it?) for business that hire certain military veterans. The employer may be eligible for a credit up to $9,600 for each qualified veteran they hire after November 21, 2011 and before January 1, 2013. There are several layers of credits, with up to a $2,400 credit for hiring a veteran who has been unemployed for at least four weeks, up to $5,600 for hiring a veteran who has been unemployed for more than six months, and up to $9,600 for hiring a veteran with a service-connected disability and who has been unemployed for more than six months. The last credit amount is up to $4,800 for hiring a veteran with a service-connected disability who does not meet the Returning Hero credit requirements or who qualifies for food stamps.
More Foreign Asset Reporting
The Foreign Account Tax Compliance Act increased the reporting requirements for individuals holding specified foreign financial assets. The aggregate value of the assets must be at least $50,000. The IRS has a page devoted to the specifics. The information is reported on Form 8938, "Statement of Specified Foreign Financial Assets." For more on the Foreign Account Tax Compliance Act, see IRS.gov: Foreign Account Tax Compliance Act (FATCA).
Bonus Depreication
While the 100% bonus depreciation expires on December 31, 2011, the 50% bonus depreciation remains for 2012. The 100% bonus depreciation lives on for longer-lived and transportation property (LLTP). LLTP property consists of certain property with a recovery period of ten years or more or to transportation property property that has an estimated production period greater than one year and a cost in excess of one million.
EITC Due Diligence
The penalty for failing to comply with IRC Sec. 6695(g) Earned Income Tax credit due diligence requirements increases to $500 for returns filed after December 31, 2011. The EITC due diligence requirements are broken down into 4 parts. The final EITC regulations (click here for full text: TD 9570) included the following updates:
1) Form 8867 must now be filed with the tax return.
2) The tax preparer must retain a copy of Form 8867, the completed Earned Income Credit Worksheet, how and when the information used to complete Form 8867 and the Earned Income Credit Worksheet was obtained, including the identity of the person, a copy of any documents provided by the taxpayer on which the tax return preparer relied to complete Form 8867 or the Earned Income Credit Worksheet, e.g. interview questions and answers from the client.
3) The documents above must be retained for three years from the latest of the following dates in either electronic or paper form so long as the IRS can access it, as applicable:
a) The due date of the tax return
b) In the case of an electronically filed return, the date the tax return was filed
c) In the case of a paper filed return, the date the tax return was presented for signature
d) In the case of a nonsigning tax return preparer, the date the nonsigning tax return preparer submitted to the signing tax return preparer that portion of the tax return for which the nonsigning tax return preparer was responsible.
4) A firm may be subject to penalty if one or more members of the principal management of the firm participated in or knew of the failure to comply with the due diligence requirements. The firm failed to establish reasonable and appropriate procedures to ensure compliance with the due diligence requirements. The firm disregarded its reasonable and appropriate compliance procedures through willfulness, recklessness, or gross indifference.
5) There is an exception to the preparer or firm penalty if the prepare can demonstrate to the IRS the normal office procedures are reasonably designed and routinely followed and the cause of the penalty was an isolated event.
The previous EITC due diligence rules that were not updated are still in effect. See the IRS webpage devoted to the new EITC due diligence rules including access to a webinar (45 minutes long).
Voluntary Classification Settlement Program
The IRS introduced a voluntary classification settlement program (VCSP) in September 2011 enabling eligible taxpayers to voluntarily reclassify their workers as employees for federal employment tax purposes for future tax periods while receiving relief for part of the tax liability resulting from past treatment of the workers as nonemployees. See IRS Announcement 2011-64 for more information.
0 comments:
Post a Comment