Opinion: Consider these 11th-hour tax tips

As the April 17 tax deadline approaches, there are important new items and reminders to consider when gathering information and filing taxes.

Trade or business expenses
Those operating a trade or business reported on Schedule C, Schedule F (farm) or Schedule E (trade or business of renting property) will be asked two new questions on the forms:

Did you make any payments in 2011 that would require you to file form(s) 1099; and, if the answer is yes, did you or will you file all required 1099 forms?

Form 1099 generally applies to 2011 payments totaling more than $600 to individuals or entities other than corporations for services (including parts and materials), rent, prizes and awards, other income payments, medical payments, crop insurance proceeds, fishing proceeds, notional principal contract – such as a commodity swap – or attorney fees. Services could include repairs, professional fees and contract labor. Taxpayers reporting rental income on Schedule E typically are not required to file 1099s, unless the rental activity rises to the level of a trade or business.

Also, self-employed health insurance no longer is allowed as a deduction in calculating self-employment tax. However, those who are self-employed still may be able to claim a deduction for self-employed health insurance premiums on Page 1 of Form 1040.

Mileage rate changes
Due to rising fuel costs, the Internal Revenue Service increased the standard mileage rate used to calculate the deductible amount for business use of a vehicle.

Effective July 1, 2011, the standard mileage rate increased to 55.5 cents per mile from 51 cents. For medical expense deductions, the mileage rate increased to 23.5 cents per mile from 19 cents. Mileage related to charitable travel remains unchanged at 14 cents per mile.

You need to document your deduction by recording the who, what, where and when details of travel. Note the purpose of the trip, distance and date. If fuel prices continue to rise, the rate could increase again at some point in 2012. You will want to know how many miles you had before and after the change to get the right deduction. It is a good idea to keep a log or calendar in the vehicle to record trips as they happen.

Remember that actual expenses may be larger and can be used for business auto expense deductions. In addition to gas and oil changes, actual car expenses include depreciation, lease payments, registration fees, licenses, repairs, tires, garage rent, tolls and parking fees. You still will need to know business versus personal miles to calculate the percentage of actual expenses connected to business use.

Capital gains and losses
For reporting capital gains and losses, Schedule D received an overhaul for 2011. New basis reporting requirements for brokers are phasing in, starting with equities acquired on or after Jan. 1, 2011, followed by mutual funds and dividend reinvestment plans on or after Jan. 1 of this year. For covered securities sold in 2011, brokers now must report the date of acquisition, cost or other basis, amount of loss disallowed due to the wash sale rules and whether the gain or loss is short-term or long-term. Some types of sales may now report basis to the investors but be shown as “noncovered” and may not yet be reported to the IRS.

Look for explanation notes on Form 1099-B from your broker. Whether basis is reported to the IRS determines how an investor reports the sales after separating the transactions between short-term and long-term. The support schedule from the past, Schedule D-1, has been replaced with the new Form 8949. Now, a separate form must be filed for short-term and long-term transactions.

You will want to verify that the basis the brokers have reported to you, or to the IRS, is accurate. For example, if you received stock as a gift from a relative, your basis would carry over from the previous owner and not be the value on the date it was transferred into your broker’s account. In this case, if that is the basis reported to the IRS, you would need to use the adjustments column on Form 8949, and you would need to provide your tax preparer with your actual basis.

Roth retirement accounts
If you converted a Roth individual retirement account in the 2010 tax year and did not elect to report the income in 2010, don’t forget you generally must pick up half of that income in 2011 and the rest on your 2012 return. The special rule to defer income from a Roth conversion only applied to 2010. If you converted a traditional IRA to a Roth IRA in 2011, any income recognized as a result of the conversion must be included on your 2011 tax return.

Even with the tax deadline rapidly approaching, there is still time to review your financial information and expenses, check for accurate reporting, enlist the help of a tax professional and realize significant potential tax benefits.

Jeff Rowe is a manager with BKD CPAs & Advisors in Springfield. He may be reached at jrowe@bkd.com.

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