The tax filing season is upon us and before January is through, employers, contractors, investment companies, and other places will be sending tax forms to our places of residence. Individual taxpayers, armed with IRS forms, brochures, booklets, and internet web sites, are ready to once again complete their tax returns in the most timely manner possible and keep their taxes owed to an absolute minimum.
Most tax rules remain the same as last year, but there are a few noteworthy changes that could impact the preparation of individual 2011 tax returns. Here are some of the changes to keep in mind before you start to fill out your 1040 form and accompanying schedules:
Brokerage Reporting: Brokerage services are now required to report to the Internal Revenue Service not just the sales proceeds from investments, but also the cost basis of the investment sold. In the past, brokers reported only the sales amount and it was up to the taxpayer to identify the cost basis for capital gain calculations. Now, brokers must also report what the investment costs. Of course, an investor might make a partial sale of an investment that was purchased in multiple stages, and this would make it more difficult for a broker to determine an accurate cost basis, but never fear: The IRS has added more columns to the Form 8949 so that taxpayers can adjust the reported cost basis amount, if necessary.
Mileage Expenses: The expense rate per mile was changed right at the midpoint of the 2011 year. The rate for the first six months was 51 cents per mile while the rate for the last six months was 55.5 cents per mile. Make sure to break miles down by month so that the proper expense rate can be applied.
Self- Employment Health Insurance: Those who work as their own boss will no longer be able to offset the self- employment health insurance deduction with the self- employment tax. This was allowed in 2010, but no longer. Now, taxpayers will have to take the adjustment on their 1040 form as an adjustment to income.
Home Buyer’s Credit: First time home buyers will no longer receive a credit unless they are members of the military or Foreign Service. In addition, some home buyer’s credit recipients will have to complete IRS Form 5405.
Foreign Assets: Those taxpayers who hold foreign assets will have to report them on a new form, IRS form 8938. A taxpayer with holdings in a foreign bank will need to continue to fill out a foreign bank account report.
Making Work Pay Credit: This tax credit has been eliminated completely in 2011.
Among these changes, one that could affect a large percentage of Americans is the brokerage reporting requirement. Keep in mind that while brokers are required to report a cost basis, taxpayers can change it under certain circumstances. A sale of all shares held in an investment will not involve any dispute, but with partial sales of investments that were purchased at different times, taxpayers may want to select which assets to sell. Brokers may also make mistakes, so the IRS is fine with taxpayers making a change to the cost basis as long as the change is justified.
Most people haven’t thought much about taxes this early in the year and the above changes will not affect everyone, but it is good to know what is in store for 2011 before the April 17 tax filing deadline. Remember to keep all tax documents you receive in a secure place and consult the IRS web site and other reputable tax sources if questions arise. And have a happy 2011 tax filing season.
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