January 15, 2012
I would like to personally thank you for choosing Bryan, Russell & Associates, P.C. as your accounting firm because without you we wouldn’t be successful. We appreciate the trust and confidence you have placed in us. We are happy to meet with you to listen to your concerns about how we can improve our services and your business for 2012.
Some of the new tax law changes for the 2011and 2012 are listed below.
Two extra days to make an IRA contribution
The April 17 deadline applies to any return or payment normally due on April 15. It also applies to the deadline for requesting a tax-filing extension and for making 2011 IRA contributions.
Tax Benefits Extended
Legislation, enacted in December 2010, extended several popular tax benefits, including the American opportunity credit for parents and students, the enhanced child tax credit and the expanded Earned Income Tax Credit. Details on these and many other deductions and credits are available in Publication 17.
Limited Non-business Energy Property Credit Available in 2011
This credit generally equals 10 percent (down from 30 percent the past two years) of what a homeowner spends on eligible energy-saving improvements, up to a maximum tax credit of $500 (down from the $1,500 combined limit that applied for 2009 and 2010). In addition, the energy standards are increased for most property; windows, exterior doors and skylights, for example, must meet Energy Star Program requirements.
Because of the way the credit is figured, in many cases, it may only be helpful to people who make energy-saving home improvements for the first time in 2011. That’s because homeowners must first subtract any nonbusiness energy property credits claimed on their 2006, 2007, 2009 or 2010 returns before claiming this credit for 2011.
The cost of certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass all qualify, along with labor costs for installing these items. In addition, the cost of energy-efficient windows and skylights, energy-efficient doors, qualifying insulation and certain roofs also qualify for the credit, though the cost of installing these items do not.
Repayment of First-Time Homebuyer Credit
Taxpayers who claimed the first-time homebuyer credit for a home bought in 2008 must generally make the second of 15 annual repayment installments on their 2011 return.
Separately, a repayment requirement also applies where a taxpayer purchased a home and claimed the credit on a prior year return and then sold it or stopped using it as a main home in 2011.
Though the credit has expired for most homebuyers, certain members of the armed forces and some other taxpayers who bought a home early in 2011 may still qualify for the credit on their 2011 return.
New Way to Report Capital Gains and Losses
In most cases, taxpayers now use new Form 8949 to report capital gain and loss transactions. Schedule D, the form traditionally used to show these individual transactions, is now used as a summary sheet, reporting amounts for total sales price, basis and other adjustments for all individual transactions, and for figuring the tax. For securities both bought and sold in 2011, the Form 1099-B, issued by the broker, normally shows the taxpayer’s basis.
Reporting Roth Conversions
As in 2010, income limits no longer apply to rollovers or conversions to Roth IRAs from other retirement plans. However, unlike 2010 conversions, all of the income resulting from a 2011 conversion must be included on the taxpayer’s 2011 return.
For 2010 conversions, only half of the resulting income must be included in income in tax-year 2011 and the other half is reported in 2012, unless the taxpayer chose to include all of it in income for 2010. For those who did not make this choice, the income will reported on the 2011 tax form.
Standard Mileage Rates Up in 2011
The standard mileage rate for business use of a car, van, pick-up or panel truck is 51 cents a mile for miles driven during the first six months of 2011 (January through June) and 55.5 cents a mile for the rest of the year, up from 50 cents for 2010.
The rate for the cost of operating a vehicle for medical reasons or as part of a deductible move is 19 cents a mile from January through June and 23.5 cents a mile after that, up from 16.5 cents per mile in 2010.
The rate for using a car to provide services to charitable organizations is set by law and remains at 14 cents a mile.
Health Insurance Deduction for Self-Employed People
In 2011, eligible self-employed individuals and S corporation shareholders can use the self-employed health insurance deduction to reduce their income tax liability. Premiums paid for health insurance covering the taxpayer, spouse and dependents generally qualify for this deduction. In addition, premiums paid to cover an adult child under age 27 at the end of the year, also qualify, even if the child is not the taxpayer’s dependent. However, the deduction from self-employment income for determining self-employment tax, which was available only in tax-year 2010, no longer applies.
As before, the insurance plan must be set up under the taxpayer’s business, and the taxpayer cannot be eligible to participate in an employer-sponsored health plan.
Change for HSAs and MSAs
Starting in 2011, the additional tax on distributions from a health savings account (HSA), not used for qualified medical expenses, increases from 10 percent to 20 percent. Similarly, the additional tax on distributions from an Archer medical savings account (MSA), not used for qualified medical expenses, rises from 15 percent to 20 percent.
New Michigan law affects pension taxation in 2012
Pensions may now be subject to Michigan income tax due to Public Act 38, which was signed into law earlier this year. The law takes effect on January 1, 2012. For those affected, withholding begins with the January pension payment. See the Michigan Department of Treasury site for complete details of the 2012 changes.
Please be advised due to new IRS regulations and Michigan Association of CPA’s. We are now required to obtain signed engagement letters this year from all our clients. You will be asked to sign this form along with IRS Form 8879 prior to us electronically filing your tax return.
Due to the increased IRS penalties for late filed returns, it is important we receive your information before March 31st so we can have adequate time to prepare your tax return.
Thanks for your trust and we sincerely hope you have a very profitable year in 2012.
Daniel B. Muzljakovich, President and Owner
Bryan, Russell & Associates, P.C.