What’s new for your 2011 Federal Income Tax Return?

Feb 2012

This is the time of year to start getting your tax return together. It is also the time to start looking at the various changes in the tax law for 2011 that could impact your return, along with some areas that many taxpayers overlook. The good news is that this year, the tax filing deadline is April 17th, giving you two extra days to file your taxes. If you are an investor or save for retirement, there are a few other important changes you need to understand:

-If you are an investor, you know how complicated it can be to calculate your cost basis for reporting capital gains and losses on your taxes. Fortunately, Form 1099-B for securities both bought and sold in 2011 and issued by the broker, will for the first time will actually show the cost basis on your stock or mutual fund trades. The information on this form will help taxpayers correctly fill out the new IRS Form 8949 Sales and Other Dispositions of Capital Assets. This form must first be completed before completing Schedule D.

-Even though it is 2012, you may still take actions that impact your 2011 tax return. For example, if you are eligible you may make an Individual Retirement Account (IRA) contribution of up to $5,000 which reduces your taxable income. If you are over age 50 you may make an additional $1,000 “catch-up” contribution. If you are married, both taxpayers may make a combined total contribution of $10,000 (or $12,000 if both over age 50).

-You can also take an IRA deduction if you were covered by a retirement plan and your modified adjusted gross income (AGI) for 2011 is less than $66,000 (or $110,000 if married filing jointly or qualifying widow or widower).

-If your spouse was covered by a retirement plan, but you aren’t, you may be able to take an IRA deduction if your modified AGI for 2011 is less than $179,000. The IRA contribution must be made by April 17, 2012.

-Another alternative is to make a Roth IRA contribution. However, a Roth IRA contribution does not reduce your taxes as it is not deductible. The benefit is that withdrawals from a Roth IRA may be tax-free if certain conditions are met, which differs from a traditional IRA which is taxable upon withdrawal.

-You should check to see if you qualify for two popular credits –the credit for child and dependent care expenses and education credits. The credit for child and dependent care expenses are allowed if you work or are looking for work and you incur expenses in providing care for your children or other qualified individuals. In addition, after satisfying certain income limitations, you may also qualify for a credit for certain tuition expenses.

-Lastly, if you itemize your deductions, make sure you keep records to substantiate your deductions. In addition, if you make non-cash charitable contributions, such as clothes or furniture, you may deduct the fair market value of the donated items. Remember, no deduction is allowed for a separate contribution of $250 or more unless you have a written confirmation from the charity. For example, if you bring $1,000 in clothes or furniture to the Goodwill or the Salvation Army, make sure that you get a receipt. Never throw such contributions into a bin where no receipt is available.

Filing taxes is a stressful thing. But it will feel a lot better when the deadline approaches if you have taken advantage of all the tax changes that could lower your tax bill, and have filed the proper forms so you don’t have to worry if you will be audited in the future.


More News