Increased Small Business Audits
The TIGTA report represents a development in a larger push by the IRS to improve tax compliance among small businesses, an area considered ripe with compliance issues. A 2007 Government Accountability Office report on the tax gap estimated that sole proprietors in particular had underreported their net 2001 income by 57 percent. The report found that 39 percent of all sole proprietors had erred in reporting their gross income on Schedule C and 11 million had overstated their expenses by $40 billion. Of the $345 billion tax gap from 2001, sole proprietors accounted for $68 billion, or 20 percent.
2011 Tax Highlights
Capital Gains and Losses Taxpayers must report capital gain and loss transactions on new Form 8949; Schedule D is now used as a summary sheet. In addition, Form 1099-B, issued by brokers, will show the taxpayer’s basis in some instances, making it easier for taxpayers to fill out Form 8949.
IRAs. Roth conversions could still take place in 2011; however, all income from the conversion must be included on the taxpayer’s 2011 return.
Standard Mileage Rate The standard mileage rate increased for 2011 for business use of a car, van, pick-up or panel truck. The rate was 51 cents per mile for miles driven from January through June, and it increased to 55.5 cents per mile for the remainder of the year. The alternative minimum tax exemption increased in 2011: $74,450 for a married couple filing a joint return, $37,225 for a married person filing separately, and $48,450 for singles and heads of household.
Self-Employed Health Insurance Eligible self-employed individuals and S corporation shareholders can use their self-employed health insurance deduction to reduce their income tax liability by claiming the amount on Line 29 of their Forms 1040. Premiums paid for health insurance coverage for the taxpayer, spouse and dependents generally qualify, including premiums paid for an adult child under age 27, even if that child is not the taxpayer’s dependent. The additional tax on distributions from a health savings account (HSA) not used for qualified medical expenses is 20 percent, and it is reported on Form 8853.
