When it comes to income limits for certain tax breaks, exemptions, and tax brackets, the numbers are constantly changing, which means you can't just copy new income numbers into last year's return. Barbara Weltman, a tax expert and author of J.K. Lasser's 1001 Deductions and Tax Breaks, points out that the Alternative Minimum Tax exemption amount is higher this year ($48,450 or $74,450 if married filing jointly) and the home-energy credit amount has also changed, for example.
[See 10 Places to Retire on Social Security Alone.]
Weltman adds that because eligibility for various types of tax-advantaged accounts, such as the Roth IRA, depends on a income level that is indexed to inflation, people may qualify to make a Roth IRA contribution this year when they haven't in the past, particularly if their income didn't increase (or they lost their job). "Look at all the breaks available to you and don't assume you can't [make contributions] this year," she suggests.
7. Reporting requirements have been ratcheted up a few notches.
Mark Luscombe, principal federal tax analyst for the tax firm CCH, notes that a new form—Form 8949—as well as a change to Form 1099-B means that investors (and their brokers) have additional reporting duties for 2011 for any sales or exchanges of capital assets, and the IRS will check to make sure the new information matches that on taxpayers' returns. "If you're not careful, you're likely to be audited if the forms don't match," he warns. Any foreign assets, if the value of all foreign assets of a single taxpayer living in the United States is over $50,000 on the last day of 2011 or $75,000 at any time during 2011 (or $100,000 and $150,000 respectively for married couples filing jointly), also have to be reported on a new form (Form 8938). Small business owners receiving payments through PayPal, Amazon, or similar services should also know that those online payment processors will begin reporting income to the IRS for the first time this year. The rule applies to anyone who earns over $20,000 a year and exceeds 200 separate payments.
8. Taxes are due for 2010 Roth conversions.
In 2010, many taxpayers converted their traditional individual retirement accounts into Roth IRAs, which allows money to grow tax-free. That's because in 2010, high earners (anyone earning over $100,000) were allowed to make the conversions for the first time. The IRS allowed taxpayers to pay the taxes owed in the conversion in two separate chunks, in 2011 and 2012, to ease the strain. "That means anyone who converted in 2010 and elected to defer the tax now must pay that first chunk, explains Luscombe.
[What You Need to Know Before Filing Taxes]
9. It's time to pay up for that 2008 homebuyer's credit, too.
Weltman points out that anyone who took advantage of the first-time homebuyer's credit in 2008 must pay back part of that credit, which was essentially an interest-free loan, now. (Taxpayers who picked up the credit in 2009 or 2010 are not required to repay it.) The IRS offers an account look-up tool to make it easier.
10. We should all prepare for a big shake-up.
In retrospect, filing 2011 taxes might seem like a piece of cake compared to what's in store for taxpayers. The upcoming Congressional debates over how to balance the budget, the presidential election, and the expiration of the Bush tax cuts along with dozens of other provisions that are set to expire this year, suggest many changes are on the horizon. Says Steber: "2013 will be a crazy time for taxes."
Reader Comments Read all comments (8)
Charles Fairbanks of FL 9:56AM April 05, 2012
henok of IN 10:17PM March 11, 2012
Kim Palmer of DC 11:08AM March 07, 2012