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Overview of 2011 Income Tax Law Changes

Medical Income Exclusion. Distributions from HSAs and Archer MSAs not used for qualified medical expenses: tax increases to 20%For HSAs, Archer MSAs, FSAs, and HRAs: medicine or drug is a qualified medical expense only if a prescribed drug or insulin Breast pumps: qualified medical expenses

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Overview of 2011 Income Tax Law Changes

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    1. Overview of 2011 Income Tax Law Changes

    2. Medical Income Exclusion Distributions from HSAs and Archer MSAs not used for qualified medical expenses: tax increases to 20% For HSAs, Archer MSAs, FSAs, and HRAs: medicine or drug is a qualified medical expense only if a prescribed drug or insulin Breast pumps: qualified medical expenses IRC 220 & IRC 223

    3. Stock Transactions Revised Form 1099-B New Form 8949, Sales and Other Dispositions of Capital Assets Filed with Schedule D Includes information previously on Schedule D Replaces Schedule D-1 Schedule D is summary schedule IRC 6045 TD 9504

    4. Form 1099-B Includes basis information New boxes for date of acquisition, cost, loss disallowed due to wash sale, non-covered security, description, and whether short-term or long-term gain

    5. Form 8949 May need multiple Forms 8949 No gain or loss figured per transaction totals carried to Schedule D

    6. Schedule D (Form 1040) Summarizes Forms 8949 Gain and loss figured once, based on totals from Form(s) 8949 Page 2 of schedule does not change

    7. Roth IRAs In 2011, include of income from a 2010 Roth conversion or rollover unless the taxpayer elected to include the entire conversion or rollover in 2010 Possible income acceleration from 2012 for Roth IRA distribution IRC 408A

    8. Designated Roth Accounts 2011 - include of income from 2010 rollover to designated Roth account in same plan unless the taxpayer elected to include the entire conversion or rollover in 2010 Possible income acceleration from 2012 for designated Roth account distribution Governmental 457(b) plans can be amended to permit participants to treat elective deferrals as Roth contributions IRC 402A(c)

    9. Qualified Charitable Distributions Exclusion for qualified charitable distributions from IRAs extends through 2011 Can elect to treat a QCD made in Jan. 2011 as a 2010 distribution IRC 408(d)(8)(F)

    10. Nonbusiness Energy Property Credit Credit reduced to 10% of qualifying expenses Credit limited to $500 for all years after 2005 Combined credit limit of $200 for windows for all tax years after 2005 Maximum credit for residential energy property limited to specific dollar amounts IRC 25C

    11. Claiming Earned Income Credit Any paid tax preparer must complete Form 8867, Paid Preparers Earned Income Credit Checklist Taxpayer must attach Form 8867 to tax return IRC 6695(g)

    12. Merchant Card and Third Party Payment Information Reporting Filed by payment settlement entity (PSE) Must be filed by electronic payment facilitator or third party payer paying on behalf of PSE Report merchant card payments and third party network payments IRC 6050W and TD 9496

    13. Forms revised to report merchant card payments Schedules C, E and F (Form 1040) Form 1065 Forms 1120 and 1120S Report even if no Form 1099-K received Merchant Card and Third Party Payment Information Reporting

    14. New Hire Retention Credit Credit of up to $1,000 per retained qualified employee Qualified employee must have been retained for at least 52 consecutive weeks Wages in second 26 weeks must have been at least 80% of wages in first 26 weeks Use Form 5884-B, New Hire Retention Credit IRC 38(b)

    15. Act provides 100% bonus depreciation for qualified property put into service between Sept. 9, 2010 and Dec. 31, 2011 (Dec. 31, 2012 for certain longer production period property and certain aircraft) The Act provides 50% bonus depreciation for qualified property put into service in 2012 (2013 for certain longer production period property and certain aircraft) IRC 168(k) Bonus Depreciation Deduction

    16. Penalties Increased Apply to failure to file correct information returns and failure to furnish correct payee statements $100 maximum penalty per return $1.5 million maximum penalty per taxpayer Reduced penalty where failure corrected within specified period now also applies to failure to furnish correct payee statements $250 minimum penalty - intentional disregard IRC 6721 & 6722

    17. E-file Mandate Returns filed for tax year 2011 in calendar year 2012 must e-File if filing 11 or more returns Applies to individual, trust, and estate returns IRC 6011(e)

    18. Partnership Changes Form 1065 new line for merchant card and third party payments Schedule A eliminated, new Form 1125A Schedule B Form 5471 question added Schedule L Information on loans to and from partners

    19. Corporation Changes 1120 & 1120S - New line for merchant card and third party payments Schedule A - deleted; new Form 1125-A Schedule E - deleted; new Form 1125-E Schedule J expanded Part I (Tax Computation) and Part II (Payments and Refundable Credits)

    20. Resources Draft 2011 forms: www.IRS.gov/draftforms Final 2011 forms: www.IRS.gov/formspubs Changes to Current Tax Products: www.irs.gov/formspubs Legislation: thomas.loc.gov E-mail: taxforms@irs.gov

    21. 21 Employment Tax Issues December 2, 2011

    22. Form 941 Changes New Line 5e 3121 (q) Notice and Demand Tax due on unreported tips Lines 6a through 6d reserved for future use Changes reflect new rules beginning in Q1 Lines 12c and 12d eliminated

    23. Small Business Health Care Tax Credit For small employers providing health insurance coverage Tax years beginning after 12/31/2009 For profit: nonrefundable at 35% Tax exempts: refundable at 25% Requirements: FTE, average annual wages, must be qualifying arrangement See Notices 2010-44 and 2010-82

    24. W-2 Reporting of Cost of Employer Health Care Coverage Amount reported not taxable Optional for 2011 (Notice 2010-69) Report in box 12 of Form W-2 Code DD Information only Notice 2011-28 provides interim guidance and transition relief, including for certain small employers

    25. W-2 No advance earned income credit Code changes for box 12: Code DD, Cost of health care optional in 2011; amount not included in taxable income Code EE, Roth 457(b) accounts Code CC, HIRE wages, eliminated

    26. Reduction in Employee Share of Social Security for 2011 Employee Social Security tax rate changed from 6.2% to 4.2% Employee Social Security rate New multipliers on Form 941 rate change from 12.4% to 10.4% Employer share remains at 6.2%

    27. Form 1099-MISC Compliance Secure correct TIN upfront IRS sends CP2100 or CP2100A for returns filed with missing or incorrect TIN Payer may be subject to backup withhold CP 2100 actions missing or incorrect TINs

    28. Form 1099-MISC Compliance The B Notice Solicitation requirements Backup withholding, Form 945, IRS Audit & Penalties Documentation

    29. Return Preparers New PTIN rules for tax return preparers Must register and obtain a PTIN if paid to prepare all or substantially all of a tax return or claim for refund Must have PTIN before preparing returns in 2011 Must be renewed every year

    30. Worker Classification Independent contractor Employee

    31. 1120-S Officers Compensation Little or no compensation reported and significant distributable income Officer / shareholder performed significant services Employment taxes reduced or eliminated Compliance efforts

    32. Collection of Trust Fund Taxes Prompt filing of notice of federal tax lien Assertion of trust fund recovery penalty Simultaneous collection from both business entity and responsible parties

    33. Keeping Current with IRS Collection December 2, 2011

    34. Fresh Start Initiatives Tax lien threshold & withdrawals Direct debit installment agreements and liens In-business installment agreements Streamline offer in compromise

    35. Installment Agreements Streamlined vs. guaranteed Direct debit installment agreement Partial payment installment agreement User fee

    36. On-Line Payment Agreements Visit IRS.gov, search Keyword installment agreement Criteria Payment options Ability to revise existing agreement

    37. Employment Taxes In-business trust fund express installment agreements Electronic Federal Tax Payment System Trust fund recovery penalty

    38. Offer in Compromise Program objectives Reasons for offer in compromise Payment options

    39. OIC Tidbits Form 656 revision How to apply Common errors to avoid

    40. Outreach Collection process videos Insolvency webinar Discharge / subordination videos Collection Webpage

    41. Whats New on IRS.gov

    42. Ley Mills Stakeholder Liaison (703) 647-5591 herbert.mills@irs.gov Contact information

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