Congress has been gearing up for the 2012 elections so no major tax legislation was passed in 2011. The bill passed in December 2010 extended the Bush tax cuts through 2012.
You can expect the battles on how to improve our tax code to resume after the fall elections. But several interesting developments on other tax fronts have occurred.
The 2 percent payroll tax cut for employees of 2011 has been extended for this year. Expect efforts to extend it further even though the social security system remains under pressure.
The earned income credit (EIC), a common source of tax fraud, will continue to be aggressively audited. There is a new preparer penalty of $500 per occurrence for failing to meet due diligence requirements.
The government is ramping up its efforts to collect taxes on foreign investment accounts. If you have a foreign account, which has a balance of $10,000 at any time during the year, you are required to file a form TDF 90-22.1, report of Foreign Bank and Financial Accounts, by June 30 of the following year. This form is filed separate from your tax return.
In addition for tax years 2011 and later, if you have specified foreign assets over the appropriate threshold (e.g. single $50,000 on last day of the year, $100,000 at any time during the year) you are required to file Form 8938 with your tax return. The penalty for failure to disclose assets is $10,000 and soars if you don’t disclose your foreign assets after receiving an IRS notice of failure.
Beginning in 2012, businesses receiving payments over $20,000 via credit cards will receive a form 1099-K from the credit card company showing payments received.
Several tax benefits are scheduled to expire for the 2012 tax year. These include the deduction for the state on local sales tax. The residential energy credit and energy efficient home construction credit are also scheduled to expire.
The higher education tuition deduction has ended for 2012 although tax credits are still available if you qualify. The teacher’s classroom expense adjustment of up to $250 has also expired.
The ability for those 70-1⁄2 years and older to avoid taxation on an IRA distribution made directly to a charity has ended.
The IRS has introduced a new Form 8949 for the reporting of capital gains. This form will require you tell the IRS how you arrived at the cost basis for assets that were sold. This will make it easy for the IRS to audit transactions where basis errors are commonly made. The gains and losses from Form 8949 will be carried over to Schedule D where capital gains have been reported in the past.
While the Treasury waits for new tax legislation, which they hope will increase revenues, they are stepping up enforcement activity and increasing penalties.
