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IRS has released on its website a number of the final tax forms and instructions for the 2011 tax year, including Form 1040, along with some related schedules. They reflect many administrative and law changes that apply for the 2011 tax year.
Form 1040—U.S. Individual Income Tax Return—Due Date
The due date is Apr. 17, 2012 because Apr. 15 is a Sunday and Apr. 16 is the Emancipation Day holiday in the District of Columbia. The Apr. 17 due date applies even for taxpayers who do not live in the District of Columbia.
Form 1040—Gross Income
Line 15. IRA distributions and Line 16. Pensions and annuities. A taxpayer who converted or rolled over an amount to a Roth IRA in 2010 and chose to report the taxable amount on his 2011 and 2012 returns must report the amount that is taxable on his 2011 return on line 15b (for conversions from IRAs) or 16b (for rollovers from qualified retirement plans).
A taxpayer who rolled over an amount from a 401(k) plan or 403(b) plan to a designated Roth account and chose to report the taxable amount on his 2011 and 2012 returns must report the amount that is taxable on his 2011 return on line 16b.
When a taxpayer receives non-retirement-plan annuity payments from an annuity contract, part of each payment is a tax-free recovery of his basis and part is a taxable distribution of earnings. For amounts received in tax years beginning after Dec. 31, 2010, taxpayers may partially annuitize such an annuity (or endowment, or life insurance) contract. If the taxpayer receives an annuity for a period of 10 years or more, or over one or more lives, under any portion of an annuity, endowment, or life insurance contract, then that portion is treated as a separate contract for annuity taxation purposes. The net effect is that the annuitized portion is treated as a separate contract, and each annuity payment from that portion is partially a tax-free recovery of basis and partially a taxable distribution of earnings (enter on line 16).
Adoption exclusion. For 2011, the maximum exclusion for employer-provided adoption assistance is $13,360 per eligible child.
Form 1040—Adjusted Gross Income
Line 26. Moving expenses. The 2011 standard mileage rate for moving expenses is 19¢ per mile for miles driven before July 1 and 23.5¢ for miles driven after June 30.
Line 32. IRA deduction. A taxpayer may be able to take an IRA deduction if he was covered by a retirement plan and his 2011 modified AGI is less than $66,000 ($110,000 if married filing jointly or qualifying widow(er)). If the taxpayer's spouse was covered by a retirement plan, but the taxpayer was not, he may be able to take an IRA deduction if his 2011 modified AGI is less than $179,000.
Form 1040—Tax and Credits
Line 40. Itemized deductions or standard deduction. For 2011, the standard deduction is $5,800 for single filers and for married persons filing separately, $11,600 for joint filers and qualifying widow(er)s, and $8,500 for heads of household.
Schedule L (Standard Deduction for Certain Filers) is no longer in use. A taxpayer does not need it to figure his 2011 standard deduction.
Line 42. Exemptions. The amount for each exemption for 2011 is $3,700.
Line 45. Alternative minimum tax. Under Code Sec. 55(d), the AMT exemption amount for 2011 is $48,450 ($74,450 if married filing jointly or a qualifying widow(er); $37,225 if married filing separately).
Line 52. Residential energy credits. The nonbusiness energy property credit is available for property placed in service in 2011, but with new limitations. The credit now has a lifetime limit of $500, of which only $200 may be used for windows. Use Form 5695.
Line 53. Other credits. Form 5884-B, New Hire Retention Credit, is available to individuals who hired qualified employees in 2010. This credit may be claimed for a retained worker in the first tax year ending after Mar. 18, 2010, for which the retained worker satisfies a 52-consecutive-week requirement. Thus, for employers filing calendar year income tax returns, the retention credit is claimed on the employer's 2011 income tax return. The new hire retention credit is part of the general business credit claimed on Form 3800, General Business Credit.
A taxpayer cannot claim the alternative motor vehicle credit for a vehicle bought after 2010, unless the vehicle is a new fuel cell motor vehicle.
Form 1040—Other Taxes
Line 56. Self-employment tax. Maximum amount of self-employment income subject to FICA tax is $106,800; no ceiling on Medicare wage base.
The self-employment tax rate is reduced from 15.3% to 13.3%.
Health insurance costs for a taxpayer and his family are no longer deductible in computing self-employment tax.
An individual may use the farm optional method only if (a) his gross farm income was not more than $6,720 or (b) his net farm profits were less than $4,851. Using this method, farm self-employment earnings equals the smaller of (1) two-thirds of gross farm income, or (2) $4,480.
An individual may use the nonfarm optional method only if (a) his net nonfarm profits were less than $4,851 and also less than 72.189% of his gross nonfarm income and (b) he had net earnings from self-employment of at least $400 in 2 of the prior 3 years. Individuals may compute their self-employment earnings as the smaller of two-thirds of gross nonfarm income or $4,480.
A self-employed individual with both farm and nonfarm incomes is allowed to use both optional computation methods if the farm income qualifies for the farm optional method and the nonfarm income qualifies for the nonfarm optional method. If both optional methods are used to compute net earnings from self-employment, the maximum combined total net earnings from self-employment for any tax year can't be more than $4,480.
Line 59b. First-time homebuyer credit repayment. A taxpayer who has to repay the credit may be able to do so without attaching Form 5405. For principal residences purchased after 2008, a homebuyer credit is recaptured (i.e., repaid) only if, during the 36-month period beginning on the purchase date, the taxpayer disposes of the residence or it stops being his principal residence. For homes bought before 2009, recapture is generally required over a 15-year period.
Line 60. Other taxes. The additional tax on distributions from HSAs and Archer MSAs not used for qualified medical expenses has increased to 20% for distributions after 2010.
Form 1040—Payments
Making work pay credit. The making work pay credit has expired. A taxpayer cannot claim it on his 2011 return.
Line 64. Earned income credit (EIC). The maximum credit is higher, and the AGI-based phaseout figures are revised.
Line 67. First-time homebuyer credit. To claim the first-time homebuyer credit for 2011, the taxpayer (or his or her spouse if married) must have been a member of the uniformed services or Foreign Service or an employee of the intelligence community on qualified official extended duty outside the U.S. for at least 90 days during the period beginning after Dec. 31, 2008, and ending before May 1, 2010.
Line 69. Excess social security and RRTA tax withheld. Maximum Social Security (OASDI) tax for 2011 is $6,621.60 (computed on the first $106,800 of wages) for purposes of credit for excess tax withheld.
Line 71. Credits from Form 2439, 8839, 8801, 8885. For 2011, the maximum adoption credit is $13,360 per eligible child for both non-special needs adoptions and special needs adoptions, and the adoption credit is refundable.
2011 Form 1040 and other related forms and schedules
IRS has released on its website a number of the final tax forms and instructions for the 2011 tax year, including Form 1040 and related forms and schedules. They reflect many administrative and law changes that apply for the 2011 tax year. This Practice Alert in two parts highlights key changes made on the 2011 return. Part I (that appeared in the Newsstand e-mail on 12/15/2011) examined Form 1040 itself. This Part covers related forms and schedules.
The Form 1040 for 2011 can be viewed on the IRS website. The Instructions can be viewed here. The schedules for Form 1040 can be accessed on the IRS website at this location.
Form 1040—Schedule A, Itemized Deductions
Line 1. Medical and dental expenses. The 2011 standard mileage rate for medically-related use of an auto is 19¢ per mile for miles driven before July 1 and 23.5¢ for miles driven after June 30.
Line 21. Unreimbursed employee expenses. The 2011 standard mileage rate is 51¢ per mile for miles driven before July 1 and 55.5¢ for miles driven after June 30.
Form 1040— Schedule B, Interest & Ordinary Dividends
Line 1. Interest. Accrued interest on Series EE U.S. savings bonds issued in '81 is taxable.
Line 3. Excludable interest on Series EE or Series I U.S. savings bonds. The exclusion for education related savings bond interest phases out at higher income levels. For 2011, the phaseout begins at modified adjusted gross income above $71,100 ($106,650 on a joint return).
Form 1040 — Schedue C, Profit or Loss From Business
Qualified joint ventures reporting rental real estate income not subject to self-employment tax. Qualified joint ventures reporting rental real estate income not subject to self-employment tax must report that income on Schedule E instead of Schedule C.
Line D. Employer ID number (EIN). The EIN instructions for this line have been expanded for single-member disregarded entities, agents, employers that lease their employees, and professional employer organizations.
Lines I and J. Information reporting requirements. New lines I and J address taxpayers' required filings of 1099s in 2011.
Part I. Line 1a. Gross merchant card and third party network receipts and sales. Beginning in 2011, payments taxpayers receive through merchant cards and third party networks are reported on Schedule C separately from other gross receipts.
Part II. Expenses. Line 9. Car and truck expenses. The 2011 standard mileage rate for business travel is 51¢ per mile for miles driven before July 1 and 55.5¢ for miles driven after June 30. In addition, beginning in 2011, taxpayers may use the business standard mileage rate for a vehicle used for hire, such as a taxicab.
Part II. Expenses. Line 13. Depreciation and section 179 expense. See entries for Form 4562, below.
Form 4562, Depreciation & Amortization
Part I. Election to expense certain tangible property under Sec. 179. For tax years beginning in 2011, the maximum amount that may be expensed under Code Sec. 179 is $500,000, with the investment-based phaseout beginning at $2,000,000.
For a tax year beginning in 2011, a taxpayer may elect to treat up to $250,000 of qualified real property (qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property) as Code Sec. 179 property.
Part II. Special depreciation allowance. Businesses that acquire and place qualified property into service during 2011 can claim a depreciation allowance in the placed-in-service year equal to 335 of the cost of the property.
The election to amortize expenses paid or incurred in creating or acquiring musical compositions or copyrights to musical compositions is no longer available for property expenses paid or incurred in tax years beginning after Dec. 31, 2010.
Part V. Listed property. First-year luxury auto limits for vehicles first placed in service in 2011 are $11,060 for autos and $11,260 for light trucks or vans (if bonus depreciation rules apply) and $3,060 and $3,260, respectively (if bonus depreciation rules don't apply).
Form 1040—Schedule D, Capital Gains And Losses
New Form 8949, Sales and Other Dispositions of Capital Assets, replaces Schedule D-1. Taxpayers must complete new Form 8949 before completing Schedule D. Specifically, the taxpayer uses Form 8949 to report:
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The sale or exchange of a capital asset not reported on another form or schedule,
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Gains from involuntary conversions (other than from casualty or theft) of capital assets not held for business or profit, and
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Nonbusiness bad debts.
The taxpayer uses Schedule D:
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To figure the overall gain or loss from transactions reported on Form 8949, and
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To report capital gain distributions not reported directly on Form 1040, line 13 (or effectively connected capital gain distributions not reported directly on Form 1040NR, line 14).
Basis on Form 1099-B. A taxpayer who sold a covered security in 2011 should be sent a Form 1099-B, Proceeds from Broker and Barter Exchange Transactions, from his broker that shows his basis. This will help in completing Form 8949. Generally, a covered security is a security acquired by the taxpayer after 2010, with certain exceptions explained in the instructions for Form 1099-B.
Adjustments to gain or loss on Form 8949. In certain situations, a taxpayer will have to put a code in column (b) of Form 8949 and make an adjustment to his gain or loss in column (g), as detailed in the instructions for Form 8949, which are included in the instructions for Schedule D.
Short sales. Some instructions for reporting short sales have changed.
Form 1040—Schedule E, Supplemental Income and Loss
Lines A and B. Information reporting requirements. New lines A and B address taxpayers' required filings of 1099s in 2011.
Part I. Line 1a. Gross merchant card and third party network receipts and sales. Beginning in 2011, payments taxpayers receive through merchant cards and third party networks are reported on Schedule E separately from other gross receipts.
Part I. Line 2. Qualified joint ventures reporting rental real estate income not subject to self-employment tax must report that income on Schedule E instead of Schedule C.
Form 1040—Schedule F, Profit Or Loss From Farming
Line D. Employer ID number (EIN). The EIN instructions for this line on Schedule F have been expanded for single-member disregarded entities, agents, employers that lease their employees, and professional employer organizations.
Lines F and G. Information reporting requirements. New lines F and G address taxpayers' required filings of 1099s in 2011.
Part I. Farm Income—Cash Method. Beginning in 2011, payments taxpayers receive through merchant cards and third party networks are reported on Schedule F separately from other gross receipts.
Part II. Farm Expenses—Cash and Accrual Method. Line 10. Car and truck expenses. The 2011 standard mileage rate for business travel is 51¢ per mile for miles driven before July 1 and 55.5¢ for miles driven after June 30.
Source: Federal Tax Updates on Checkpoint News tab 12/20/2011
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