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CCH Reviews Changes Taxpayers Will See for 2011 Tax Season

(RIVERWOODS, ILL., January 4, 2012) – The good news is that 2011 ended without many last-minute tax law changes that would have introduced uncertainty into this year’s income tax filing season, according to CCH, a Wolters Kluwer business and a leading provider of tax, accounting and audit information, software and services (CCHGroup.com).

That said, there are still plenty of changes that taxpayers should be aware of as they get ready to do their taxes this year, according to CCH Principal Federal Tax Analyst Mark Luscombe, JD, LLM, CPA.

Following are highlights of tax provisions that will impact the 2011 tax filing season.

Provisions specific to individual taxpayers include:

  • First installment of taxes owed on 2010 Roth conversions. Individuals who did a R oth conversion in 2010 and elected to spread the tax payment over 2011 and 2012 will have to pay one-half of the tax owed on their 2011 income tax return. However, if a taxpayer took a distribution in 2011 from their 2010 Roth conversion, they may be required to pay more to cover taxes on the distributed amount. Also, tax on any additional conversions done in 2011 will have to be included on the 2011 tax return. 
  • Changes to Form 1040. Changes affecting the 1040 include a new line (Line 59b) for repayment of the First-Time Homebuyer Credit. The repayment installment can be entered directly on Line 59b without the use of Form 5405 if the taxpayer continued to own the home and use it as their main home throughout 2011. In addition, there is no longer a line on the Form 1040 for the Making Work Pay Credit, which expired at the end of 2010.
  • Changes for investors in reporting basis. Investors will see that Form 1099-B has been revised to provide for their broker to report the basis of transactions during the year. The IRS will check to see that this information matches the basis reported on the taxpayer’s return. Additionally, these transactions should now be reported on the new Form 8949, rather than directly on Schedule D.
  • Carryover basis on inherited assets may be lower than expected for some. Taxpayers who inherited assets where the estate elected to use the 2010 estate tax repeal option will receive a Form 8939 in January or February from the estate executor providing the basis information for those assets. Estates that used the 2010 estate tax repeal option will use as the basis the basis of the asset in the hands of the decedent, or carryover basis, unless a limited stepped-up basis is allocated to that asset. This carryover basis is often significantly less than the stepped-up basis – or the value of the asset at the time of the decedent’s death.
  • “An heir of a 2010 estate using the 2010 estate tax repeal option who sold the asset before receiving the Form 8939 may be surprised at the amount of capital gain owed from the sale,” Luscombe noted.

  • New requirements for reporting foreign assets. Foreign Account Tax Compliance Act ( FATCA) reporting requires foreign assets to be reported if they have a total value of more than $50,000 ($100,000 if married filing jointly).  FATCA is broader than what is defined under the Report of Foreign Bank and Financial Accounts (FBAR). For example, FATCA includes stock or securities issued by someone other than a U.S. “person,” any interest in a foreign entity, and any financial instrument or contract that has an issuer or counterparty other than a U.S. “person.” In addition to the prior obligation to report FBAR accounts on Form TDF90-22.1, FATCA must now be reported on a new Form 8938.

In addition, two tax changes broadly affecting employers include:

  • New W-2 reporting of employer-sponsored health care coverage. Although it is only optional for Form W-2s issued in 2012 (becoming mandatory in 2013 under the health care reform legislation) some employees may receive W-2s for 2011 that include a new code (DD) in Box 12 and amount for employer-sponsored health care coverage. This provides the IRS with information to determine if the employer and employee have complied with the health insurance mandates of health care reform. However, as those mandates are not yet in effect, this added information on the W-2 does not impact 2011 federal tax return filing requirements.
  • Employee retention credit. This credit related to 2010 hiring, however, it required retaining the employee for at least 52 weeks to qualify for the credit, thereby moving eligibility for the credit to 2011 tax returns. To qualify for the credit, the employer must have paid wages in the last 26 weeks equal at least to 80 percent of the wages for the first 26 weeks. The credit is claimed on Form 5884-B and is the lesser of $1,000 or 6.2 percent of the retained worker’s wages during the period.

Additionally, taxpayers should know about two new regulations affecting tax preparers for 2011:

  • E-filing mandate. Starting with tax returns filed in 2012, tax preparers must e-file if they are filing 11 or more returns. This is up from more than 100 returns for the last filing season. There are limited exceptions: clients may in writing instruct their preparer that they want to opt out of e-filing; and a preparer can apply to opt out due to hardship by notifying the IRS via Form 8944.
  • Tax preparer exam. The IRS now requires paid tax preparers other than attorneys, CPAs and enrolled agents, to take and pass an exam. These preparers have until December 31, 2013 to pass the test.

Additionally, CCH provides ongoing analysis of new laws through regular tax briefings at CCHGroup.com/legislation.

About CCH, a Wolters Kluwer business

CCH, a Wolters Kluwer business (CCHGroup.com) is the leading global provider of tax, accounting and audit information, software and services. It has served tax, accounting and business professionals since 1913. Among its market-leading solutions are The ProSystem fx® Suite, CorpSystem®, CCH® IntelliConnect®, Accounting Research Manager® and the U.S. Master Tax Guide®. CCH is based in Riverwoods, Ill. Follow us now on Twitter @CCHMediaHelp. Wolters Kluwer (www.wolterskluwer.com) is a market-leading global information services company. Wolters Kluwer is headquartered in Alphen aan den Rijn, the Netherlands. Its shares are quoted on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices.

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