2011’s IRS Hot Buttons for Form 1040

As you begin preparing for your 2011 taxes, it’s important to be aware of the areas that are being scrutinized this year.

First, here’s a quick single-stop index of terms for you from Fairmark.com:

Form 1040 and Attachments

Form 1040	U.S. Individual Income Tax Return Form Instructions Use this form if you can't use Form 1040EZ or Form 1040A.
Schedule A Schedule B	Itemized Deductions Interest and Ordinary Dividends Form Instructions The IRS combines both forms in a single electronic file, and also combines the instructions for both forms in a (different) single electronic file. Schedule A: For more information see Your Itemized Deductions. Schedule B: Most taxpayers don't need this schedule unless they have $1,500 or more of interest income, or $1,500 or more of ordinary dividend income.
Schedule C	Profit or Loss from Business Form Instructions Use to report income and deductions from a sole proprietorship (a business or profession of your own). For more information see Your Business.
Schedule C-EZ	Net Profit from Business Form & Instructions You can use this easier version of Schedule C if you don't have a loss, have business expenses of $2,500 or less, and meet other requirements set forth at the top of this form.
Schedule E	Supplemental Income and Loss Form Instructions Use to report income and deductions from rental real estate, royalties, partnerships, S corporations, estates and trusts, and residual interests in REMICs.
Schedule EIC	Earned Income Credit Qualifying Child Information Form & Instructions File this schedule if you claim the earned income credit and you have one or more qualifying children. For more details see Pub 596 below.

 

Form 1040 Red Flags

Inconsistencies or incomplete information in the following areas are hot buttons on Schedules A, C, and E that are likely to earn you a closer look, either from your tax professional or from the IRS:

Schedule A

• Unreimbursed employee business expenses claimed on Form 2106;
• Mileage;
• Travel, meals, and entertainment expenses that require documentation; and
• Receipts for cash charitable contributions and adequate documentation of noncash contributions.

Schedule C

• Gross receipts not fully reported;
• Expenses must be ordinary and necessary; and
• Expenses must be paid or incurred during the taxable year.

Schedule E

• Rental income and expenses not property reported;
• Depreciation not properly calculated; and
• Passive activity and basis limitations not properly calculated.

It’s never too early to start preparing for the April 15^th deadline. When do you usually get started with your taxes?

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Important Federal Tax Developments for 2011

The last few years have been extremely busy in terms of education for your accountants.

During the third quarter of 2011, there were many important federal tax developments -- enough to keep the team at BCWS hopping to stay on the front lines in terms of education.

Here are highlights of some of the most important updates:

Federal taxes

President Obama unveiled a number of tax proposals and revenue raisers in September as part of his proposed American Jobs Act.

• The Act proposes to extend and enhance the 2011 employee-side payroll tax cut
• Expand tax credits for hiring military veterans
• Extend 100 percent bonus depreciation
• The Jobs act proposes NOT to extend the Bush-era tax cuts for higher income taxpayers.

 

Worker classification

The IRS unveiled the Voluntary Classification Settlement Program (VCSP) in September. The VCSP is open to employers that currently treat their workers as independent contractors and that want to prospectively treat the workers as employees. The VCSP provides a reduced penalty framework and audit protection to qualified employers.

Cell phones

• The IRS announced that employer-provided cell phones, provided primarily for noncompensatory business reasons, will not be treated as taxable compensation to employees and that personal use is nontaxable.
• Likewise, employer reimbursements to employees who use their personal cell phones for business will not be taxable.

Exempt organizations

The IRS issued final regulations to implement redesigned Form 990, Return of Organization Exempt From Income Tax. The final regulations reflect proposed regulations and provide for the elimination of the advance ruling process for new Code Sec. 501(c)(3) organizations.

Health care reform

• The Sixth Circuit Court of Appeals upheld the constitutionality of the individual coverage mandate in the Patient Protection and Affordable Care Act (PPACA).
• In Thomas More Law Center v. Obama, CA-6, June 29, 2011, the Sixth Circuit found the health care reform law was a reasonable exercise of Congress’ authority to regulate commerce.
• However, the Eleventh Circuit Court of Appeals struck down the individual mandate in the PPACA in August.
• The Eleventh Circuit found that Congress cannot require individuals to enter into contracts with insurance providers.

 

Tax collection

The IRS increased its enforcement revenue in fiscal year (FY) 2010, the Treasury Inspector General for Tax Administration (TIGTA) reported in August. FY 2010 gross collections included approximately $1.2 trillion from individual taxes, $800 billion from employment taxes and $300 billion from corporate taxes.

The information here was culled from various issues of the CCH Federal Tax Weekly. For a complete resource for all the Federal Tax Developments for 2011, click here or here.

If you have any questions about these updates, or any tax questions, please contact our office.

 

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Are You On Top Of Your Tax Deadlines?

The fall is a busy time in the tax season for most accountants.

BCWS is fast approaching several critical tax deadlines, which means you are too. In case you’ve ever wondered what happens this time of year, here is a breakdown of the key tax deadlines for the rest of 2011.

September 15, 2011 

• 3rd quarter estimated tax payments due for 2011 tax year.
• Final deadline to file corporate tax returns if an extension was requested. (Forms 1120, 1120A, 1120S).
• Final deadline to file trust income tax returns (Form 1041) if an extension was requested.
• Final deadline to file partnership tax returns (Form 1065) if an extension was requested.

October 3, 2011

• Final deadline for self-employed persons or employers to establish a SIMPLE IRA for the year 2011.

October 17, 2011

• Final deadline to file individual tax returns (with extension).
• Last day the IRS will accept an electronically filed tax return for 2010. If filing after October 17th, you'll need to mail in your tax return for processing.
• Final deadline to fund a SEP-IRA or solo 401(k) for tax year 2010 if you requested an automatic extension of time to file.

November 2011

• Start planning any year-end tax moves. 
• BCWS does extensive planning with our clients in November and December but if you don’t have a good accountant and need some assistance with planning, click here.

December 1, 2011

• If you are covered by an HSA-compatible health insurance policy as of December 1st, you'll be eligible to contribute the full amount to a Health Savings Account for the year.

December 31, 2011 

• Last day to make any tax moves for the year 2011.
• Last day to set up a solo 401(k) for self-employed persons.
• Marital status on this date determines your marital status for the whole year.

Source: Tax Calendars for 2011 (IRS Publication 509)

The last year has seen an unprecedented number of changes to the tax laws. It is more important than ever to be sure you have an accountant who is up to date on these changes. Your bottom line depends on it.

If you are choosing to do your taxes yourself, below are some links that can help:

• IRS 2011 Withholding Calculator
• Top 5 Tax Calculators from About.com
• Estate Tax Planning Calculators

Other great tools:

• 2011 Estimated Tax Calculator
• 1040 Tax Calendar and Tax Rates for 2011
• Payroll Deductions Calculator for 2011

Remember: Behind every good business is a great accountant.  Our goal is to help your business thrive.

BCWS wants to connect with you!  Please come join us at:

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