IRS Officials List Important 2012 Filing Season Changes for Individuals and Businesses

Business forms, schedules and tax credits have changed or disappeared this filing season, stated IRS officials Jeff Buchanan, lead tax law specialist, Business Forms and Publications Branch, and Jason Langley, lead tax law specialist, Tax Forms and Publications, at a January 25 IRS webinar. "It's going to be a tough year for people," said Langley, referencing the numerous changes not only for the 2011 filing season, but also for the 2012 tax year and beyond. Moreover, tax planners are currently uncertain which expired and expiring tax provisions will be extended again, and looming on the horizon is the expiration of the Bush tax cuts on December 31, 2012.

Not all changes will cause anxiety, however. The IRS speakers kicked off the webinar with the good news that the April 15, 2012, filing deadline has been extended for two days, until April 17. The reason is that April 15 is a Sunday and April 16 is the Emancipation Day federal holiday observed in Washington, D.C.

Individual Form Changes

Capital gains. The new Form 8949, Sales and Other Dispositions of Capital Assets, has replaced Schedule D as the means of reporting capital gains and losses. Schedule D has not disappeared, however, and must be filed along with Form 8949 in many cases (for example, to report a gain or loss from a partnership, S corporation, estate or trust). But much of what had been reported on the old Schedule D now goes on Form 8949.

Practitioner Bill Horn, vice president, National Association of Tax Professionals, expressed concern over the burden this reporting requirement places on taxpayers. A separate Form 8949 must be filed for every security to be reported. "If you have a practitioner who charges by the form, that will increase the cost of getting your return prepared," said Horn. Taxpayers whose preparers charge by the hour may also be hit hard. Horn estimated that 20 minutes would be required for each form.

"The IRS recognizes that the changes to Schedule D and Form 8949 are causing a lot of anxiety," Langley responded. He assured taxpayers that the forms had been tested, however.

Foreign financial assets. Certain filers must now report their foreign financial assets on Form 8938. This development is in addition to the requirement that certain taxpayers file the FBAR form, Report of Foreign Bank and Financial Accounts, that has been in place for several years.

Schedules L and M. In 2012, individuals will not need to file Schedule L, the form by which many once calculated their standard deduction. For 2011, the amount of the deduction ($5,800 for single filers, $11,600 for married joint filers) is now located on the left margin of Form 1040, near the line where the deduction is entered. For those who still need to calculate their deduction, the amount can be found in the Form 1040 instructions.

Schedule M, the Making Work Pay Credit, is also gone. The 2-percentage point decrease in employee-side payroll taxes was designed to replace this credit.

Individual Income/Deductions

HSA distributions. The additional tax on distributions from a Health Savings Account for nonqualified medical expenses has increased from 10 percent to 20 percent. The definition of qualified medical expenses has narrowed and no longer includes nonprescription drugs. For example, Tylenol and Advil only qualify for tax-free status if prescribed.

Medical/moving expenses. The IRS updated the mileage rate for calculating the deduction of expenses incurred for operating an automobile for qualifying medical or moving purposes for 2012. For the first half of 2011, the rate was 19 cents per mile; then, to reflect increasing transportation costs, the IRS increased the rate to 23.5 cents for the second half of the year.

Roth IRA conversions. Congress enacted a special provision allowing taxpayers converting their traditional IRAs to Roth IRAs in 2010 to defer the income until 2011 and 2012. Taxpayers who rolled over this income in 2010 must report it in 2011. Usually, they will report the first half of the amount in 2011 and the second half in 2012, Langley said.

Expired provisions. Tax provisions that have now expired include deductions for teacher/educator expenses and the tuition deduction (once reported on Form 8917). The state and local sales tax deduction, an itemized deduction that taxpayers can take in lieu of their state and local income taxes, expired at the end of 2011. Although taxpayers may claim it on their 2011 returns, they cannot count on it for 2012. Congress, however, may retroactively extend the deduction, as it has in the past.

Individual Credits

First-time homebuyer credit. "The first-time homebuyer credit is much more limited this year," said Langley, who stated that the $7,500 credit has expired in 2012 for most taxpayers. Some members of the foreign service or military who were not living within the United States and were able to take advantage of the credit still qualify. The few who do qualify cannot electronically file their returns. They must file on paper.

Additionally, those who claimed the credit in 2009 and 2010 and have since sold their homes must repay the credit. "But if there was no gain from the sale, no tax is really due. They just have to do some paperwork," said Langley. Taxpayers repaying the credit from 2008 can now repay the credit directly on Forms 1040 or 1040NR rather than filing Form 5405.

Energy credit. The energy credit meant to help taxpayers offset the costs for installation of qualified energy efficiency improvements is more limited. "Not many taxpayers will be eligible for it," Langley noted. For those that are, the lifetime maximum is $500, with a $200 amount specified for replacement windows.

Earned income credit. A refundable earned income credit (EIC) is available to certain low-income individuals whose adjusted gross income (AGI) is below a certain level and who have a valid Social Security number, use a filing status other than married filing separately, are U.S. citizens or resident aliens, have no foreign income, and do not have investment income above a certain amount. Many taxpayers have incorrectly claimed the credit in the past; tax return preparers are now subject to certain due diligence requirements designed to result in more accurate reporting.

Because tax return preparers face increased penalties ($500 per incorrectly filed EIC credit), taxpayers can expect to face a more exhaustive list of questions regarding their income, marital status, number of children, and other relevant information.

Business Forms, Deductions, Income

Health insurance deduction for self-employed. Eligible taxpayers no longer need to file a separate schedule to claim this deduction. They may enter it directly on Form 1040, Line 29.

Standard mileage rate for businesses. Like the rate for moving and medical-related automotive expenses, the standard mileage rate to calculate income or expenses incurred while operating an automobile changed twice in 2011. For the first six months the rate was 51 cents per mile; for the second six months, the rate increased to 55.5 cents per mile. Another 2011 change is that certain taxpayers are permitted to use that rate to calculate usage of taxi cabs so long as less than five vehicles are being used.

Form 3800. The IRS has significantly redesigned the general business credit form, changing Part I and adding a Part III. Part I is now used to figure the current year's credit. Part III now features eight check-boxes where taxpayers must indicate the type of credit being reported. It also requires that any credit claimed on behalf of a pass-through entity be accompanied by that entity's tax identification number.

Form 1065. Other redesigns of corporate and partnership tax returns have affected the Form 1065 family and certain forms in the Form 1120 family, Buchanan reported. Schedule A has been eliminated with respect to many of these forms.

Also, the IRS has issued a new Form 1065X, which can be used to correct a previously filed Form 1065 that contains an error. Taxpayers may not file it electronically, however.

Electric drive motor vehicle credit. Taxpayers claiming the credit on Form 8936 are now required to enter the Vehicle Identification Number (VIN) for the vehicle.

IRS Help Tools

Buchanan concluded by reminding taxpayers of the tax tools available on the IRS website at http://www.irs.gov/. Apart from the product pages detailing the more than 500 tax forms and schedules, he noted that there are several toll-free numbers for both individuals and businesses. Taxpayers who have completed the filing process and want to check on their refunds can visit the IRS website and use the "Where Is My Refund?" tool or download and use the IRS2Go smartphone app.

Langley reminded taxpayers about the identity theft PIN numbers issued to taxpayers whose information was stolen and used to file fraudulent tax returns. He cautioned that, if taxpayers received a PIN and fail to enter it, the processing of their return will be significantly delayed. If they do not know the number, the IRS would not be able to reissue or replace it. "If they don't have the PIN, then they just have to go without it," said Langley.