Small Business Taxes & Management

Special Report

Changes to Note for 2011 Form 1040 Filing


Small Business Taxes & ManagementTM--Copyright 2012, A/N Group, Inc.


While there are a number of changes to Form 1040 and the accompanying schedules and forms, many taxpayers will notice less rather than more information is required. Here's a rundown of the most important changes. If you prepare your own return and use computer software (highly recommended), a number of these changes will be taken care of automatically.

Return due date. It's April 17, 2012. The due date is the 17th because April 15 is a Sunday and April 16 is the Emancipation Day holiday in the District of Columbia.

Capital gains and losses. This is the change that will affect most taxpayers and have the biggest impact. Gains and losses, both short- and long-term, will generally be entered on Form 8949 and carried over to Schedule D. Capital gain distributions, gains and losses from partnerships, S corporations, etc. are reported directly on Schedule D. For most taxpayers, the information on Form 8949 will be the same as was required on last year's Schedule D. The difference is that you may need four Forms 8949, one for each of the following groups of transactions:

Which one you use for a transaction will depend on what's reported on the Form 1099-B you received from your broker. Chances are you'll need all four. You may need two additional Forms 8949 if you have capital gains and losses not reported on a 1099-B (e.g., you sold that classical car you restored).

Some instructions for reporting short sales have changed. And check your broker's Form 1099-B carefully and read the instructions for Schedule D. Get IRS Publication 550 for more information.

Schedules L and M. No longer needed. You can still deduct sales tax (as an option to deducting income taxes) on Schedule A, Itemized Deductions.

Inflation adjustments, alternative minimum tax, etc. As always, there are annual changes either as a result of inflation adjustments or those mandated by law. For example, the standard deduction has increased. Go to our Tax Facts for Individuals 2011 page for a complete listing.

Standard mileage rates. The charitable rate is 14 cents per mile. For medical and moving, it's 19 cents per mile for miles driven before July 1, 2011; 23.5 cents per mile for miles driven after June 30. For business, it's 51 cents per mile for miles driven before July 1, 2011; 55.5 cents per mile for miles driven after June 30.

Schedule C changes. On both Schedule C and E (and Forms 1120S, 1065, etc.) there is a question as to whether or not you were required to file Forms 1099, and if you did. Failure to address the question could affect your audit chances.

Schedule E changes. There are several changes to Schedule E. You now have to identify the type of property (e.g., single-family residence, commercial) for which you're reporting the income and expenses. There's a line for merchant card and third-party payments. Enter 0 for 2011 (the IRS has indicated it won't require an entry there). Instead of checking a yes/no box as to the percentage of personal use, you'll have to enter the actual number of days. Make sure you have records to back that up. Finally, you can elect to treat husband-wife ownership as a qualified joint venture. Check the rules for your situation, but most taxpayers who own another home or two and rent them won't make the election.

Self-employed health insurance deduction. This deduction is no longer allowed on Schedule SE, but you can still take the deduction on Form 1040, line 29 as in prior years.

Health savings accounts, HSAs and MSAs. For distributions in 2011 and subsequent years, the additional tax on distributions from these accounts not used for qualified medical expenses has increased from 10% to 20%. In addition, beginning in 2011 amounts paid for medicine or a drug are qualified medical expenses only if the medicine or drug is a prescribed drug or insulin.

First-time homebuyer credit. The credit may be available to a few members of the foreign service or military, but for most taxpayers it's history. Some taxpayers who were required to repay the credit (those who purchased in 2008) may be able to do so without attaching Form 5405. If you disposed of a home (or ceasing using it as your principal residence) for which you claimed the credit in 2009 or 2010, you may have to repay it. See the instructions for Form 5405.

Nonbusiness energy property credit. This credit is still available, but there have been a number of changes and the credit is computed differently than in 2010. In addition, there is now a lifetime credit limit of $500, $200 of which can be for windows. If you took the credit in prior years, you might have reached your maximum. Use Form 5695. For more information, see IRS Publication 17.

Earned income credit. There have been several changes to the earned income credit including higher allowable income for qualifying. In addition, paid preparers have to file Form 8867 with a return claiming the credit.

Health coverage tax credit. This credit has been extended and the amount has changed. You may be eligible for the credit, but you must meet a number of requirements. If you were an eligible trade adjustment assistance (TAA) recipient, alternative TAA (ATAA) recipient, reemployment TAA (RTAA) or Pension Benefit Guaranty Corporation (PBGC) pension recipient, you might be eligible.

Foreign financial assets. If you had foreign financial assets in 2011, you may have to file new Form 8938 with your return. There is a penalty of $10,000 for failure to file. There is a filing threshold, so you may qualify for an exception. Get Form 8938 and the accompanying instructions.


Copyright 2012 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. Articles in this publication are not intended to be used, and cannot be used, for the purpose of avoiding accuracy-related penalties that may be imposed on a taxpayer. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536

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--Last Update 02/09/12