TAX RETURN PREPARATION FOR 2011
McChesney & Dale offers the convenience of e-filing. When your return is filed electronically, you have the option of having your refund mailed to you or deposited directly into your bank account. It's faster and safer if you have your refund deposited directly to your bank account.Tax Planning is a key component of Tax Advisory Services at McChesney & Dale. Preparing accurate tax returns is a critical function, whether it's for your business or yourself. The tax planning professionals at McChesney & Dale assist in developing an overall tax strategy to minimize your total tax obligation.
Individual tax returns are due April 17th, 2011. Corporate returns are due by March 15th, 2011. In order to allow adequate time to prepare your tax return, we need your tax return information in our office before April 2nd (in the case of corporations, March 1st). These deadlines are intended to make sure that your return is not hurried or rushed leading up to the filing deadline.
If you are unable to have your tax documents together and to our office before April 2nd, we are happy to file an extension to file your tax return.
For your convenience, please download and print your tax organizer which will help you gather the necessary documents for you 2011 tax return. Please fill out the organizer (as much or as little as you are comfortable with) and bring it to us with your tax documents.
THE TAX RELIEF ACT
One of the most important pieces of legislation is the Tax Relief Act, which was signed on December 17, 2010. The Tax Relief Act extends, renews or enhances a large number of individual tax incentives, among the most far reaching being reduced individual income tax rates and an across-the board payroll tax cut for 2011. What follows are some key individual tax incentives in the new law:
Individual tax rates. Reduced individual tax rates that were put in place in 2001 were scheduled to expire after 2010. The new law extends the reduced rates for 2011 and 2012.
AMT relief. Along with extending these rate cuts, the new law targets relief to taxpayers facing the alternative minimum tax (AMT). Because the AMT is not indexed for inflation, and for other reasons, the tax steadily encroaches on middle class taxpayers. The new law stops this encroachment by giving individuals higher exemption amounts and providing other targeted relief. The reach of the AMT often surprises individuals.
Capital gains/dividends. In 2003, Congress set new maximum tax rates for qualified capital gains and dividends but, like the individual rate cuts, these taxpayer-friendly rates were temporary. The new law extends these rates for 2011 and 2012.
Child tax credit. Many individuals enjoy the benefit of the $1,000 per child tax credit. Without the new law, the child tax credit would have dropped to $500 for 2011. The new law extends the $1,000 credit and keeps the refundability threshold at $3,000 for 2011 and 2012. In addition, the new law also extends some enhancements to the earned income tax credit and the adoption credit for two years.
Education. A variety of tax incentives are available to help save for and finance education costs. Like so many incentives, they are temporary. The new law extends some of the most popular education tax incentives like the American Opportunity Tax Credit, the tuition deduction, and the student loan interest deduction.
Other incentives. The new law extends many other valuable but temporary tax incentives for individuals. They include the state and local sales tax deduction, the teacher's classroom expense deduction, and special rules for individuals who contribute IRA proceeds to charity. Keep in mind that not all of the expired temporary individual tax incentives were extended. Among the incentives not extended are the additional standard deduction for real property taxes, the $2,400 exclusion for unemployment benefits, the first-time homebuyer tax credit, and COBRA premium assistance. If you have any questions about which incentives were extended, please contact our office.
TAX LAW CHANGES FOR 2011
Payment of taxes owed on 2010 Roth conversions. Individuals who did a Roth 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. In addition, tax on any additional conversions done in 2011 will have to be included on the 2011 tax return.
Changes for investors in reporting basis. If you're an investor, you (and the IRS, of course) will receive a revised Form 1099-B from your broker that now records the basis of transactions during the year. The IRS will check to see that this information matches the basis reported on your return. Additionally, these transactions will now be reported on the new Form 8949, rather than directly on Schedule D.
Employee retention credit. This credit related to 2010 hiring, but because it required retaining the employee for at least 52 weeks to qualify for the credit, it moved eligibility information 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.
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 per mile for miles driven during the first six months of 2011 and 55.5 cents per 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 per 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 at 14 cents per 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 (younger than 27 at year end), 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.
