Now we are into the federal tax season, here are four important reminders as you work on your 2011 returns:
Start early. If you think you are due a federal refund, brokerage firm Charles Schwab recommends starting early. That way, if you discover that you have lost important paperwork, such as charitable receipts, you can get new ones.
Beware of new forms. A new Form 8949 has to be filled out for capital gain and loss transactions. Schedule D is now used as a summary sheet. Also, many investors may be surprised to see on 1099-B Forms that brokerages have reported gain/loss information of equities acquired on or after January 1, 2011. Investors should still track the information themselves, recommends brokers at Charles Schwab that has six offices in South Florida.
Continue paying back a home-buying loan. Those who claimed a First-Time Homebuyer Credit in 2008 benefited from an interest-free loan that is required to be repaid in 15 installments, beginning with the 2010 federal tax return, said Sunrise accountant Daniel Gass. Owners need to calculate how much of the loan they need to repay this tax season while filing 2011 returns.
Pay taxes on Roth IRA conversions. Uncle Sam gave a break to those converting regular IRA retirement accounts in 2010 into Roth IRAs accounts that are nontaxable when taking money out after age 59 1/2. "People with Roth conversions in 2010 had the option to spread the tax between 2011 and 2012," said Gass. "This is the first year to pick up taxes on the conversions and it is important to remember that what was done in 2010 will impact the returns filed in 2012."
For 2010 conversions, only 50 percent of the resulting income should be included in the 2011 tax return. The remaning owed taxes should be paid next year while filing the 2012 returns, he said.
"This is the case unless the taxpayer chose to include all of it in income for 2010. For any conversions made in 2011, all of the income from the conversion must be reported on the 2011 return," Gass said.
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