Tax Code Changes for 2011 Filing

As with every year, the Federal Tax code wants to keep us all on our toes by modifying the already complex provisions of the code. Here are some of the tax law changes that may impact your 2011 filing. Consult with your tax professional to see if any of them may result in additional deductions or revenue that would result in a different tax liability. If you have already filed, check to see if you would qualify for an amended return to be filed.

Income Tax Rates
The 2011 rates carry over from 2010, but the income brackets are higher to account for inflation.

Personal Exemptions
The amount one can deduct for each exemption has increased to $3,700.

Alternative Minimum Tax
The alternative minimum tax (AMT) exemption amount increased $1,000 per qualified taxpayer for tax year 2011 and is driven by the status under which you file.

Capital Gains and Dividends
Lower rates for long-term capital gains and dividends remain in effect for 2011 and 2012.

Designated Roth Accounts
Taxpayers who rolled over an amount from a 401(k) or 403(b) plan to a designated Roth account during 2010 and did not elect to report the taxable amount on a 2010 return must report half on the 2011 return and the rest on the 2012 return.

Roth IRAs
Unlike 2010 conversions, all income resulting from a 2011 conversion must be included in that year’s return.

Estate Tax
The federal estate tax provides a $5 million exemption and a maximum 35% rate for those who passed away after 2010. These estate tax rules are scheduled to end following 2012.

First-Time Homebuyer Credit
The qualifications to claim the first-time homebuyer credit for 2011 have been severely restricted to apply to members of the military, Foreign service, or employees of the intelligence community who served on foreign extended duty for 90 days from December 31, 2008 to May 1, 2010.

Repayment of First-Time Homebuyer Credit
Taxpayers who must repay the credit may be able to do so without using Form 5405.

Health Savings Accounts and Archer MSAs
Beginning in 2011, the additional tax on health-savings account and Archer medical savings account distributions not used for qualified medical expenses has increased to 20%. Also, starting in 2011, only prescribed drugs and insulin are considered qualified medical expenses.

Alternative Motor Vehicle Credit
The alternative motor vehicle credit can only be claimed for a vehicle bought after 2010 if it is equipped with a new fuel cell.

Child Tax Credit
The 2010 Tax Relief Act extended the credit of $1,000 per eligible child through 2012.

Making Work Pay Tax Credit
The making work pay tax credit has expired and cannot be claimed on the 2011 return.

Energy Tax Credits for Homeowners
The “25(C)” credit for energy-efficient improvements has been extended, but the amount of the credit has been reduced to a maximum of $500 per taxpayer per lifetime.

Standard Deduction Increased
The standard deduction for certain taxpayers who do not itemize their deductions on Schedule A of Form 1040 has been increased. The amount of the deduction depends on the taxpayer’s filing status.

Standard Mileage Rates
The standard mileage rate for the business use of a car, van, pick-up or panel truck has increased to 51 cents a mile for the first half of 2011, and 55.5 cents per mile for the second half.

Self-Employed Health Insurance Deduction
For 2011, qualified self-employed taxpayers and S corporation shareholders can use the self-employed health insurance deduction to reduce income tax liability. The deduction from self-employment income for determining self-employment tax, available for tax year 2010, no longer applies.

Due Date of Tax Return
For those procrastinators out there, you have an extra two days to file this year (3 if you counted leap day!). Since April 15 is a Sunday and April 16 is a holiday in the District of Columbia, tax returns are due on April 17, 2012.

Mailing Your Return
Check the address in your form as many have changed.

The Bottom Line
The Internal Revenue Service’s website provides detailed information on these and other changes. While every attempt has been made to provide timely and accurate information, this article should not be considered a definitive tax guide, nor should it replace the advice of a qualified tax professional.