The Missouri Society of CPAs (www.mocpa.org) is the largest professional association dedicated to advancing certified public accountants in Missouri. Established in 1909, the organization provides members with continuing education and governmental advocacy while working to further the future of the accounting profession through student-focused initiatives. Members of the Missouri Society of CPAs provided the answers to the following tax questions.
Steven B. Gorin
Thompson Coburn LLP
What are the current amounts of the estate and gift tax exemptions?
The current exemptions of $5.12 million for estate and gift tax purposes are effective through 2012. Under present law, the exemptions will drop to $1 million beginning in 2013.
Patricia J. Reuter
U.S. Trust, Bank of America Private Wealth Management
There was a payroll tax holiday for 2011. Was this extended for 2012, or will my take-home pay decrease?
The Temporary Payroll Tax Cut Continuation Act of 2011 temporarily extends the 2 percentage point payroll tax cut for employees. This reflects a reduction of employees' Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid through Feb. 29, 2012. Unless further legislation is enacted by Congress to extend this benefit, the Social Security withholding rate will return to 6.2 percent beginning March 1, 2012. If not extended, employees will realize a decrease in their take-home pay in March 2012.
I deducted sales tax as an itemized deduction on my Form 1040 Schedule A for 2010. Is this deduction still available for the 2011 tax year?
Yes, if you file Form 1040 and itemize deductions on Schedule A, taxpayers have the option of claiming state and local income taxes or state and local sales taxes.
Taxpayers who choose to deduct state and local sales taxes can deduct either:
• Actual sales tax amounts (based on their receipts), or
• Predetermined deduction amount from IRS tables.
The table amounts are based on the taxpayer's adjusted gross income plus nontaxable income (such as tax exempt interest or nontaxable Social Security benefits), the number of exemptions claimed and the state of residence. Taxpayers can find a sales tax calculator at www.irs.gov.
(Note: The sales tax deduction expired Dec. 31, 2011. Unless re-enacted by Congress, it will not be available for the 2012 tax year.)
Wendy D. Shireman
Bergman, Schraier & Co. P.C.
What are the standard mileage rates for 2011 and 2012 that may be used to claim deductions for use of an automobile for business, charitable, moving and medical purposes?
In response to fluctuating gas prices, the IRS made corresponding adjustments to the standard mileage rates, except for charitable use which is fixed by law at 14 cents per mile. The mileage rates for 2011 and 2012 are as follows:
2011 RATES
Business auto rate (1/1/11 — 6/30/11) 51¢ per mile
Business auto rate (7/1/11 — 12/31/11) 55.5¢ per mile
Medical and moving rate (1/1/11 — 6/30/11) 19¢ per mile
Medical and moving rate (7/1/11 — 12/31/11) 23.5¢ per mile
2012 RATES
Business auto rate 55.5¢ per mile
Medical and moving rate 23¢ per mile
What are the new requirements for reporting the sale of capital assets, such as securities, on my personal return for 2011?
In prior years, taxpayers reported their investment transactions on Schedule D, with any excess transactions that would not fit on Schedule D being reported on Schedule D-1. However, for 2011 taxpayers will no longer use Schedule D-1 as it has been replaced by Form 8949, Sales and Other Dispositions of Capital Assets. Information from Form 8949 is then transferred to Schedule D. The key change in the new schedule is due to new reporting requirements imposed on brokers who issue Forms 1099-B. If a taxpayer sells a security acquired after 2010, the issuer of the Form 1099-B is now required to report the cost basis of that security in addition to the proceeds from the sale. The new Form 8949 is organized so that securities sold with the cost basis reporting requirement are grouped together on a single Form 8949, and those securities sold with no cost basis reporting requirement are grouped together on a separate Form 8949. Therefore, a taxpayer could have several different Forms 8949 attached to his/her 2011 return. A copy of the new form is available on www.irs.gov.
David P. Heilich
Brown Smith Wallace LLC
If I have or will take advantage of the current $5.12 million gift exclusion, what happens if the $5.12 million estate tax exemption is reduced in the future at the time of my death?
Total lifetime taxable gifts (gifts in excess of those that qualify for the annual exclusion — currently $13,000 per donee) made during life are "added back" to the estate of the donor at their death. If the $5.12 million exemption is reduced in the future, there is a potential for a "claw back" of these lifetime gifts, potentially subjecting these gifts to the estate transfer tax. Several experts have indicated that based on their interpretation of the law and the apparent intent of Congress, these gifts will not be subject to the tax. However, at least for now, this conclusion is not clear and may require a clarification by Congress and/or changes to the forms required to be filed upon an individual's death.
If I properly un-convert (i.e. "re-characterize") my Traditional IRA to Roth IRA conversion, when can I convert it again?
An individual who converts a traditional IRA to a Roth IRA, and then undoes the conversion, cannot then reconvert the traditional IRA to a Roth IRA until the later of the following: 1) the beginning of the tax year following the year of the original Roth conversion, or 2) the end of the 30-day period beginning on the day the original conversion was re-characterized. Reconversions that are not made within these parameters are treated as "failed conversions," are treated as a taxable distribution and may trigger early withdrawal penalties and may cause excess contributions subject to a 6 percent excise tax.
Joe Marchbein
Jack P. Fitter CPA APC
Please explain why stockbrokers and mutual funds are sending letters to customers as to the cost basis to be used when mutual fund shares are sold.
Starting with 2012, brokers and funds are required to report the basis for the sale of covered mutual fund shares, which are securities acquired after 2011. Unless instructed otherwise by customers, the average cost method must be used. Therefore, the letters are being sent to give customers the option of using the specific lot identification method of determining the basis; the first in first out method—the shares first purchased are sold first; or the last in last out method—the shares purchased last are sold first.
Is the Making Work Pay Credit available for 2011?
The credit, which was the lesser of 6.2 percent of a taxpayer's earned income or $400 ($800 for joint filers) and was subject to phase out at certain income levels, ended Dec. 31, 2010. Thus, the credit is not available for 2011.
Jonathan P. Whiting
Schowalter & Jabouri, P.C.
I made some energy efficient improvements in my home during 2011. May I claim a tax credit for these improvements on my 2011 return?
The personal (nonbusiness) energy property credit, scheduled to expire at the end of 2010, was extended one year, through 2011. The credit is equal to 10 percent of the cost of qualifying energy-efficient property or improvements. To claim the credit, the property must have been placed in service during 2011. The credit is limited to $500 for all qualifying improvements, and must be reduced by the amount of any credits claimed in 2006 through 2010.
I took distributions from my Health Savings Account for over-the-counter medicines that were not prescribed by my doctor. I then found out that beginning in 2011, these expenses no longer qualify unless I have a prescription. Am I subject to any penalties on these distributions?
Yes. The penalty on nonqualified withdrawals from a HSA occurring in 2011 has increased from 10 percent to 20 percent. The additional 20 percent penalty does not apply to distributions made after the account beneficiary dies, becomes disabled, or turns age 65.
DISCLOSURE: Any tax advice contained in this text was not intended or written to be used, and cannot be used, by the reader for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.
EDITOR'S NOTE: This feature was updated Monday to correct the amount of estate and gift tax exemptions.
