Tax Traps to Traverse
Yahoo's Market Watch reports on a number of changes in the tax law that could lead to heartburn, unexpected tax costs or worse for unwary preparers. Probably the biggest lurking headache comes for taxpayers with sizable overseas investments; a new Form 8938 must be filed--if not, the MINIMUM penalty is $10,000. Among past tax moves that could come back to bite this year are use in 2008 of the first-time homebuyer tax incentive (a loan rather than grant that year) and conversion of traditional IRA to Roth IRA in 2010 (remember that there was a TWO-year spread of tax on the conversion). Additional dangerous changes include confusing W-2s from employers regarding the FICA 2% credit (in part because its extension was short-lived and occurred very late in 2011), more detail from brokers on basis of financial assets sold for potential capital gains or losses, a new provision in gift and estate tax law to allow carryover basis instead of the traditional step-up basis (this could lead to higher than expected taxable gains on property received by beneficiaries of decedants) and reduction of the available credit for installing energy-efficient home improvements.
Seriously consider using a professional preparer such as a CPA, tax attorney, enrolled agent or an experienced registered tax preparer (ask the registered preparer for proof that they have passed the new competency exam if you have not had them previously prepare a return for you) if you have one or more of the tax events listed above, particularly the homebuyer provision from a 2008 home purchase or sizable foreign investments. Also, particularly if President Obama is re-elected, be ready for new tax complications related to 2010's Affordable Health Care Act in 2013.