Like every other year, there are changes taking effect this year regarding federal income tax filings for individuals. With 2011 W-2 forms now out and people focused on getting their taxes done in the next two-and-a-half months, they should be mindful of many of these changes.
For starters, people have two extra days to get their tax returns filed this year rather than the traditional April 15 date.
When filing your 2011 return, take the following into consideration:
New forms
There are two new IRS forms for people to be aware of this year, Form 8949 and Form 8938. Form 8949 is for reporting capital gains and losses. Brokers will need to provide basis for securities acquired after 2010. Form 8938 is to report foreign financial assets on a tax return.
Roth IRA conversions
For those who converted traditional IRAs to Roth IRAs in 2010 and did not elect to pay the tax on it in 2010, half of that conversion income is now taxable in 2012.
CHET contributions
As in the past, for those who made contributions to Connecticut Higher Education Trust (CHET) college accounts, there are tax savings available for individuals who contributed up to $10,000 and single filers who contributed up to $5,000. With the higher Connecticut 2011 tax rates, this contribution can result in more tax savings.
Roth IRA planning tip
There are income limitations on who can contribute directly to a Roth IRA; however, there is no income limitation on who can convert from a traditional IRA to a Roth IRA. Depending on your income level, you might want to consider making a non-deductible contribution to an IRA, then converting the account to a Roth. If you have other IRAs or earnings during the transition period, there may be some taxable income to report.
For 2012 we will see the loss of a number of tax credits that individuals and families may have grown accustomed over the past several years, including the:
Ӣ residential energy credit;
Ӣ educator expense deduction (for K-12);
Ӣ tuition and fees deduction;
Ӣ sales tax deduction;
Ӣ mortgage insurance deduction; and
Ӣ charitable contributions for IRAs.
These credits led to substantial tax savings in past years and the loss of them could impact people financially this year. That is why consulting a tax professional for advice on how to potentially make up these losses could be something people may want to explore.
There is some good news on the maximum 2012 contribution limits to retirement plans and health savings accounts. The latter will allow small increases this year ”“ $50 more for individuals, to a maximum $3,100; and $100 for families, to a maximum of $6,250. Those with 401(k) and 403(b) retirement accounts will see the maximum annual contributions rise to $17,000 this year, up $500 from a year ago. Those age 50 or older can contribute an additional $5,500.
Finally, people need to be aware of major changes to come in 2013. If the Bush tax cuts expire at the end of this year and Congress does not act to continue them, there will be increases in the top federal tax rate (up from 35 percent to 39.6 percent); long-term capital gains tax rate (increasing from 5 percent and 15 percent, to 10 percent and 20 percent); and the 15 percent qualified dividends rate would cease to exist. These scheduled changes, along with the new taxes to pay for health care that are effective in 2013, are significant.
Mary Hoyt is a CPA and partner in the Shelton office of the accounting, tax and business-consulting firm BlumShapiro. She can be reached at mhoyt@blumshapiro.com.
