The most predictable element of taxation law is its ability to change. In fact, tax law can change multiple times in a single year. This keeps tax professionals in steady work and the rest of us sufficiently perplexed.To make things a little simpler for the average taxpayer, however, the IRS has released a list of the most important and relevant changes. These changes affect both stateside and expatriate Americans. We will discuss the most consequential elements of "Tax Law Changes for 2011 Federal Tax Returns" below.
Many of the changes to the 2011 tax code are specific and narrowly affect a small number of taxpayers. Others, however, are much more universal. Let’s review the broader issues first and then narrow the topics from there.
- The 2012 filing deadline is April 17th. As we saw last year, the filing date for US Federal Returns is April 15th or the next available business day. This year, the 15th falls on a Sunday and Monday is the District of Columbia’s Emancipation Day.
- The standard deduction has increased, but the amount varies according to filing status. This increase is relevant to those who do not itemize their deductions on Schedule A.
- The amount deductible per exemption is now $3,700.
- Brand new form 8949 is for reporting capital gains as well as losses. Form 8949 - known as Sales and Other Dispositions of Capital Assets. Specific totals from this form will be reported on Form 1040, Schedule D, which is now used as a summary. Form 1099-B, which investors will receive from their brokers, is used for reporting securities.
- For foreign financial assets, there is a new form for 2011 (the Statement of Foreign Financial Assets). Form 8938 does not replace the need for the FBAR form (which is filed with the Treasury) is filed alongside ones standard return. Form 8938 is required when foreign assets exceed set thresholds.
- $100,000 on the last day or $150,000 at any time during the year for residents
- $400,000/$600,000 for expats
- If you are accustomed to mailing your tax return, be sure to check the IRS website (Form 1040 instructions) for an updated list of mailing locations.
- Of the above changes, the filing deadline and form 8938 will have the most affect on expats. It is important for you to keep in mind that the extended (by two months to June 15th) deadline applies to filing, only, and not to taxes owed. If an expat expects to owe tax, he or she should file by the stateside deadline.
Additionally, expats with significant foreign holdings must allow for the brand new requirement of Form 8938. It applies to the more affluent (compared to the preexisting FBAR) but will still apply to many expats who possess substantial foreign assets.
Other Tax Law Alterations
While the above changes apply to a broad number of expatriate Americans, the following 2011 changes apply to specific tax situations such a self-employment and minimum tax.
- Changes to 2011 tax laws prevent self-employed health insurance from being deducted on Schedule SE. The deduction can still be taken on line 29 of Form 1040, however. Self-employed individuals and certain S corporation shareholders may reduce their tax liability through this deduction. Differing from last year, the deduction from self-employment income used to determine tax does not apply in 2011.
- The AMT (alternative minimum tax) has been raised to $48,450 for singles and $74,450 for married filing jointly ($32,225 if separately).
- In most cases, the home buyer credit for first-time buyers expired in 2011. However, military and intelligence community members, as well as certain individuals who bought very early in 2011, may still be able to claim the credit.
- Originating in 2010, tax credits such as the American Opportunity Credit, the Earned Income Tax Credit (the expanded version) and the child tax credit (the 2010 enhanced version) are extended to 2011.
- Also extended from 2010, income limits do not apply to either Roth IRA conversions or Roth IRA rollovers. Differing from 2010, income that results from a 2011 conversion is required on your 2011 federal tax return.
- New for 2011, the tax resulting from health savings account (HSA) distributions that are not used for qualifying expenses is increased to 20%. This amount is reported on Form 8889. In the same way, taxed distributions from MSAs are subject to a 20% rate.