1. 2011 Individual Income Taxes
Tips and “Taps”
Brian T. Whitlock, CPA, JD, LLM
Tax Partner
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2. Topics
 Overview
A few New things
Lots of expiring provisions in 2012
 Federal Changes for 2011
Expanded 1099-B reporting
Loss of some Tax Credits
Payroll Tax Cut
Extended Unemployment benefits
Foreign Asset Reporting
 State of Illinois Tax Increase – from 3% to 5%
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3. Some IRS Form 1099 Rules - Changes
 Good news - IRS Form 1099-MISC only needs to be issued
for Services rendered by non-corporations if total is more than
$600
If you operate a business get IRS Form W-9 for each Vendor
Vendor will check box on Type of Entity
 Good news - Landlords and Lessors of Real Property are not
in ―Trade or Business‖ therefore they do not need to issue IRS
Form 1099-MISC to service providers
 Bad news - Penalty Increases for failure to file 1099s
$100 for each omitted 1099
$250 for each – if intentionally disregarded Rules
Maximum penalty $1.5 million per taxpayer
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4. IRS Form W-9
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5. New IRS Form 1099 Rules
 IRS Form 1099-B
Stock Brokers must report Basis on Stock Acquired after
January 1, 2011 (at time of sale)
— Deadline for brokers postponed until Feb 29th
— Look for delays in receiving 1099’s
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6. IRS Form 1099-B
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7. New IRS Form 1099 Rules
 IRS Form 1099-B
Stock Brokers must report Basis on Stock Acquired after
January 1, 2011 (at time of sale)
— Deadline for brokers postponed until Feb 29th
— Look for delays in receiving 1099’s
New IRS Form 8949 must be filed in addition to Schedule D
— One form will report 1099-B Stock sales with reported basis
— A Second form will report 1099-B sales w/o reported basis
— A Third will report sales not reported on 1099-B
— Separate Schedule of Short-Term and Long-Term (6 possible)
IRS intends to track and match taxpayer reports to 1099’s
Watch for IRS notices for not reporting on separate 8949
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8. IRS Form 8949
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9. IRS Form 8949
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10. New IRS Form 1099 Rules
 IRS Form 1099-K (NEW)
Filed by ―Payment Settlement Agents‖ (PSE)
— Debit Cards, Credit Cards, E-Bay and Pay Pal
If you are in a trade or business (file either Schedule C, E, or F)
— Show 1099-K revenue on separate line [IRS will track and match]
If you are selling personal collectibles (file Sch D and Form
8949) Top Capital Gains Tax Rate = 28%
 Trade or Business (?) [Sole Proprietor = Schedule C]
Regular activity vs. Infrequent sales (1099 has monthly data)
Inventory
Resale Number and Sales Tax Collection
Self employment Tax on Net earnings of Schedule C
 Rental [Schedule E] or Farming [Schedule F]
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11. IRS Form 1099-K
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12. Form 1040 - Schedule C
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13. Form 1040 - Schedule E
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14. Small Business Items
 100% Depreciation Expense for 2011
Bonus depreciation for qualifying property
No AMT Adjustment
 Section 179 for $500,000 of new property placed in service
 Section 125 ―Cafeteria Plan‖ available to small business
Pre-tax treatment of health care premiums
 Standard Mileage Deduction
51 cents per business mile January 1, 2011 thru June 30, 2011
55.5 cents per business mile July 1 through December 31, 2011
19 cents per moving mile January 1, 2011 thru June 30, 2011
23.5 cents per business mile July 1 through December 31, 2011
14 cents per charitable mile
 100% gain exclusion for sale of small C Corporation (Section 1202)
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15. Small Business Items
 35% Small Business Health Insurance Credit
Under 25 employees only appeal to those with wages of $25k-50k
 Employee Retention Credit (IRS Form 5884-B)
Tax Credit of lesser of $1,000 (or $6.2% of first $16,129 of wages)
Hired after 2/3/10 and before 12/31/10 if retained for 52 weeks
 Tax Credit for hiring unemployed Veterans
Hired after 11/21/2011 and before 2013
Up to $5,620 if out of work over 6 mo. ($2,400 if out over 4 weeks)
Up to $9,600 for disabled vet over 6 mo ($4,800 if less than 6 mo)
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16. Making Work Pay Credit (Schedule M)
 $400 Refundable credit for 2009 & 2010
GONE in 2011
Replaced with Payroll Tax reduction
If you made more the $20,000 you saved more than $400
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17. 2011 - 2% Payroll Tax Cut
 Typical Employee Payroll deductions include:
Federal Income Tax
State Income Tax (3%)
FICA (Social Security) (6.2% employee + 6.2% match)
— On first $106,800 of wages
Medicare (1.45% employee + 1.45% employer match)
 Employee portion of FICA from 6.2% to 4.2% effective January 1,
2011 through February 29, 2012
For 2011 the maximum benefit was $2,172 (per worker)
For 2012 (2/12 of $110,100 or first $18,350 of wages or self
employment income exempt)
 Example: Josh earns $50,000 in wages during 2011. He will
have 2% less FICA withheld from his check meaning his take
home pay will increase by $1,000.
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18. 2011 and 2012 – 2% Illinois Tax Increase
 Ones are Wild 1/1/11 + 1 (January 11, 2011 plus 1 AM)
Illinois legislature increase individual income tax from 3% to 5%
Increases withholding tax 2%
 Example: Josh earns $50,000 in wages during 2011, but he
lives and works in Illinois. He will have 2% less FICA withheld
from his check, but he will have 2% more withheld for the
State of Illinois meaning his take home pay will be
unchanged.
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19. IRS Form W-2
 Employers to report Health Care Premiums Paid
Optional in 2012 for 2011 Forms
Mandatory in 2013 for 2012 Forms
DD in Box 12a followed by Amount
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20. IRS Form W-2 – Health Care Premiums (optional ‘11)
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21. Individual Tax Rates Extended through 2012
Marginal Individual Income Tax Rates (MFJ) (indexed for inflation)
— up to $16,750 …………… 10%
— $16,750 to 68,000……….15%
— $68,000 to 137,300… …..25%
— $137,300 to 209,250……28%
— $209,250 to 373,650……33%
— Over $373,650…………..35%
Kiddie Tax – Parent’s rate over $1,900 of Income
Marriage Penalty Reduced (difference in brackets married v single)
— Single brackets are exactly ½ of MFJ Rates
Reduced Rate on Dividends and Capital Gains
— 15% bracket …………………………………..0%
— Dividend and LTCG above 15% bracket ….15%
— Real Estate Recapture of Depreciation……25%
— Collectibles…………………………………...28%
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22. Personal Exemptions and Standard Deductions
 Personal Exemption - $3,700 per dependent
 Standard Deduction if you do not itemize
— $5,800 …………… Single and Married Filing Separate
— $950……………… .For Dependents on other’s return
— $11,600……………Married Filing Joint (MFJ)
— $8,500……………..Head of Household (HH)
— $1,450……………..Add’l deduction if over 65 or blind (Single and HH)
— $1,150……………..Add’l deduction if over 65 or blind (Single and HH)
 Marriage Penalty Reduced (difference in brackets Married v. single)
Single brackets are exactly ½ of MFJ Rates
New Civil Union Law
— Federal Defense of Marriage Act (only accepts for heterosexuals)
— Same Sex Couples (Can file Joint Illinois but can not file MFJ Federal)
– Illinois - need to attach a facsimile Joint Federal return
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23. Extended and Enhanced Tax Breaks for 2011
 Alternative Minimum Tax (IRS Form 6251)
 The AMT Exemption amount was raised from
2010 - $47,450/$72,450 (MFJ)
and to
2011 - $48,450/$74,450 (MFJ)
 Calculate Regular Tax then Calculate AMT and pay Higher one
 AMT Marginal Tax Rates
Dividends and Capital Gains Rate = 15%
Rate = 26% if AMT income is under $175,000
Rate = 28% of AMT income is over $175,000
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24. Individual Tax Relief Extended through 2012
 Exemptions and Deductions
Personal Exemption Phase-out – OUT
Sales Tax Deduction (available if higher than State Income Tax)
3% Limitation of Itemized Deductions (Pease Amendment) – OUT
Marriage Relief
— standard deduction is double - single and married filing separate
Real Estate Tax Increase in Standard Deduction - gone
— For people who don’t itemize, there is no increase in the 2010
standard deduction for real estate taxes and net disaster losses
Educator Expense Deduction extended
— Eligible Educators can deduct up to $250/$500 (MFJ) of any
unreimbursed expenses for books, supplies, equipment, materials
used in the classroom
— Eligible educators are K-12 teachers, counselors, principals and aides
who work at least 900hrs per school year
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25. Enhanced Credits for 2010 extended through 2012
 Adoption Credit (fully refundable beginning in 2010)
$13,360 largest refundable tax credit
— Any child under age 18
— Any disabled person physically or mentally unable to take care of
himself
Phase out if MAGI starts at $185,210 gone at $225, 210
Qualified expenses include
— Adoption fees, attorney fees, court costs, travel (including meals)
Paper return is required – not allowed to file electronically
— File IRS Form 8839 with Form 1040
— Attach Required Documentation
– Adoption Decree from Court or Subsidy Agreement
— Refund takes three weeks longer
IRS auditing a high percentage of these returns
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26. FORM 8839 – Qualified Adoption Expenses
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27. Enhanced Credits for 2010 extended through 2012
 Child Tax Credit
Credit for people who have a qualifying child
Maximum amount you can claim for credit is $1,000 per child
Phase-out begins at $75,000/$110,000 (MFJ)
Qualifications for Qualifying Child include:
— Under age 17 at end of tax year
— Is your child, stepchild, foster child, sibling, step sibling, or a
descendant of any of them
— Lived with you for more than half of tax year
— Didn’t provide half of their own support for tax year
Minimum earned income amount used to calculate credit was
reduced from $12,550 to $3,000 which will allow more taxpayers
to use the credit and increase the amount received.
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28. Energy Efficiency and Renewable Energy Incentives
 Residential Energy Property Credit
Extends tax credit for energy efficient improvements to existing
homes through 2011
Applies to improvements such as adding insulation, energy
efficient exterior windows and energy-efficient furnaces, water
heaters, and air conditioning systems
30% of the cost of all qualifying improvements in 2010 (lowers
to 10% in 2011).
Maximum credit limit $1,500 for 2010 (lowers to $500 in 2011).
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29. Enhanced Credits for 2010 extended through 2012
 Earned Income Tax Credit
45% Refundable credit for low to moderate income working
individuals and families with three or more kids
Amount of credit increase:
— One Qualifying Child: $3,403
— Two Qualifying Children: $5,028
— Three Qualifying Children: $5,657
— No Qualifying Children: $457
Maximum earned income amounts:
— One Qualifying Child: $35,463/$40,463 (MFJ)
— Two Qualifying Children: $40,295/$45,295 (MFJ)
— Three Qualifying Children: $43,279/$48,279 (MFJ)
— No Qualifying Children: $13,440/$18,440 (MFJ)
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30. Going, Going, Gone
 First Time Homebuyer Credit (Form 5405)
GONE – 2011
Possible Recapture if house sold too soon
 Hybrid Auto Credit
GONE for card purchased after 2010
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31. Education Benefits
 Credits
American Opportunity Tax Credit
IL Education Expense Credit
 Exclusions
Educational Assistance Exclusion
Nat’l Health Service Corp and Armed Forces Scholarship Exclusion
 Deductions
Tuition and Fees Deduction
Student Loan Interest Deduction
Business Deduction for Work-Related Education
 Savings Plans
529 Plans – Illinois Bright Start
530 Plans - Coverdell Education Savings Account
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32. FBAR – Foreign Bank Account Reporting
 IRS Form 1040 Schedule B Questions
Signature Authority over a financial account in Foreign country
Over $10,000
Required to file Form TD F 90-22.1 with Treasury before June 30th
Distributions from Foreign Trust – File Form 3520 with IRS
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33. FATCA – Foreign Asset Tax Compliance Act
 IRS Form 8938 – NEW with IRS
Foreign Financial Assets of more than $50,000
— Bank, securities, partnerships, royalties, [could include real estate].
— Broader definition of assets than FBAR
Attach to IRS Form 1040 due April 15th (17th due to Emancipation
Day in District of Columbia in 2012)
To avoid duplicated reporting, not required to disclose assets
otherwise reported on Forms 5471, 8621, 3520, 8865 or 8891;
however required to file and identify the other form .
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34. FATCA – Foreign Asset Tax Compliance Act
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35. Questions?
Brian T. Whitlock, CPA, JD, LLM
Blackman Kallick, LLP
10 S Riverside Plaza
Chicago, IL 60606
Phone (312) 207-1040
E-mail: bwhitlock@blackmankallick.com
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