HowardNews
| by HowardSoft® |
"Professional software at personal prices." |
Spring 2000 |
In this issue...
NEW: Tax Preparer Archive 2000
Thanks to the large capacity of CD-ROMs, we are offering a new end-of-season
product that will consolidate three years of Tax Preparer and its manuals
onto a single CD-ROM. It will be regularly priced at $199, but if you updated
your Tax Preparer this year we want to introduce this product to you
for $69. Here’s what you’ll get:
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3 years of Tax Preparer. Tax Preparer 2000 and the previous two editions
are included. And we’ll even include 3 years of any options you purchased
this year (including Laser Options, California Supplement, and Partnership
Edition). With this new library product you can prepare amended and
extension returns with the confidence that the latest version of the software
is being used for each tax season. And you won’t have to keep
all those floppy disks from the past!
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3 years of Tax Forms Guides. We’ve also converted the Tax Forms
Guides for these years to on-screen versions so that you may have the same
ease of use as you have with Tax Preparer 2000. They’re all in
the same format as the current version, allowing you to quickly search for
any topic with the Microsoft Word 97 Viewer that’s included (or
your own copy of Word 97).
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Updated User’s Guide too! The User’s Guide has not changed
for years, but we’ve updated it for the on-screen version included on
this new CD-ROM. Instructions for our Apple versions have been removed and
additional help with Windows 95/98 issues has been added. With this guide
and the Tax Forms Guide you no longer need paper manuals for returns for
the last 3 years.
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Bonus: Graphic 1040 & 8453-OL beta test. For this CD-ROM we’ve
also added a new capability to Tax Preparer 2000: the graphic printing of
Forms 1040, 1040-V, and 8453-OL with any Windows-compatible printer.
This is a beta-test version for those who want to try next year’s capability
now. This addition uses the Windows 95/98 interface with True-Type fonts
so that you don’t need a particular printer to achieve graphics. (In
spite of this addition, you can still use your Laser Option instead for faster
graphics on HP-compatible printers … it’s your choice through your
program settings.)
To order this new product, use the
special order form,
or just call us at (858) 454-0121. (CAUTION: This product requires
Windows 95 or later. See the order form for other requirements and
recommendations.)
e-file pilot program …
for a completely paperless return
Why a paper Form 8453-OL is usually required. While the publicity
behind the IRS’s e-file program touts the benefits of a paperless
return, most taxpayers must still file a paper Form 8453-OL (or 8453) and
attachments. The paper form includes a "Declaration of Taxpayer" which the
taxpayer(s) must sign and mail to the IRS in lieu of a signed Form 1040 once
the e-file return is accepted by the IRS.
Electronic signature eliminates the paper. Under a pilot program initiated
last year by the IRS, many taxpayers who prepare and e-file their own
return can file electronically without filing a paper Form 8453-OL.
(Unfortunately, no such pilot program exists for professionally prepared
returns.) If you filed your own return last year using computer-generated
forms like ours, you may have received a postcard from the IRS explaining
the pilot program and issuing an e-file Customer Number (ECN) to you
(and your spouse, if married). If you received such a postcard from the IRS,
you can participate in the IRS pilot program and can use Tax Preparer
2000 to do so.
How to enter "electronic signature" in Tax Preparer. Tax Preparer
2000 supports the pilot program through two entries on the first screen
of its Form 8453-OL, under the banner "For IRS ECN Pilot Program." In accordance
with IRS rules, you must personally enter your ECN number on the line "Your
ECN signature (00000)" and, if married filing jointly, your spouse must
personally enter her ECN number on the line "Spouse ECN signature (00000)".
You must do this before you transmit the return to the IRS so that
the ECN numbers are a part of the electronic return. As long as your
return would not otherwise require paper attachments other than Forms 8453-OL,
W-2, W-2G, or 1099-R, you will not have to file any paper as
long as the IRS accepts your e-file return (as acknowledged by the
IRS within 48 hours).
Roth IRAs revisited
It just gets worse. Roth IRAs caused a great deal of consternation
for the IRS when they were first available in tax year 1998, and the complexities
only got worse in tax year 1999. However, the complexities are hidden in
IRS Pub. 590 and the instructions for Forms 8606 and 5329. The forms themselves
hardly reveal the changes. We have therefore expended a great deal of effort
to automate these two forms so that your efforts in preparing them are minimized.
However, for our automation to work you must follow our instructions carefully.
Here are some highlights of areas that have caused some confusion.
Let translate do the work for carryovers. If you converted a traditional
IRA to a Roth IRA in tax year 1998, and properly completed Form 8606 for
that year, you were given the option of paying the resulting tax all at once
or spreading it over 4 years. If you chose the latter (the normal default),
only one-quarter of the taxable amount was reported on the 1998 return, and
the remaining three quarters is carried over to the following three years.
The IRS handles this on the current Form 8606 through lines 20a through 20c
of the new form. Inconsistent instructions can cause some people to skip
this section of Form 8606 and omit the required carryover. However, it is
all handled automatically by Tax Preparer 2000 as long as you started
the return with a translation of the prior-year return (with tax year retained
at 1998). Various amounts from the 1998 Form 8606 will appear on screen 5
of our Form 8606 and will be used in Part III of the form, including lines
18a, 20a, 20b, and 23. The taxable amount for the current year (once again
one-quarter of the full amount for most taxpayers) will then be included
in line 27 of Form 8606, in spite of some IRS instructions to the contrary.
It will also be reflected in the total tax at line 15b of Form 1040.
Complete Pension (Form 1099-R) Worksheets for Form 1040 before Form
8606. If the taxpayer received a 1099-R for any kind of IRA, you must
report its information on our worksheet for line 15a before attempting to
complete Form 8606. Whether the amount is nontaxable or not, all information
must be provided on the worksheets. No distinction is made among the many
types of IRAs that now exist. In fact, you must identify any IRA by
a Yes answer to line 7 (IRA/SEP distribution) even if box 7 is not checked
on the 1099-R from the payer. (The IRS now instructs payers to check
the box only for traditional IRAs, but our software requires a Yes answer
here for all IRAs.) You will identify the kind of IRA (and whether it is
a conversion) on the first screen of Form 8606, not here.
Conversions are not contributions! An important distinction is made
between amounts deposited in a Roth IRA from a traditional IRA and all other
amounts deposited. The former are called conversions and the latter are called
contributions, and each is subject to different tax rules. It is therefore
very important that you enter only cash contributions on lines 18a
(for 1998) and 18b (for 1999) of Form 8606. Amounts stemming from traditional
IRAs are instead entered first on the Pension Worksheets (noted previously)
as distributions from traditional IRAs, then identified on the first screen
of our Form 8606 as "Traditional IRA converted to Roth IRA;" the amount will
then properly appear on line 14a of Form 8606.
Why a penalty? Most preparers seem surprised when our software assesses
a 10% penalty on withdrawals ("distributions") from a Roth IRA. They are,
of course, accustomed to the fact that withdrawals from traditional IRAs
are normally subject to this penalty only when made before age 59-1/2. But
Roth IRAs are different. The IRS form and instructions are not clear on this
point, largely because the IRS did not expand Part I of Form 5329 to explicitly
handle Roth IRAs. However, the fact is that a withdrawal from a Roth IRA
within 5 years of its creation is subject to penalty with few exceptions,
irrespective of the age of the taxpayer. If the entire Roth
IRA stems from a conversion, the entire distribution is usually subject to
a 10% penalty. Otherwise only the earnings may be subject to the penalty.
(The software automatically generates Form 5329 and assesses the penalty
when it applies. Nevertheless, you may be able to eliminate or reduce the
penalty by claiming an exception detailed on pages 2-277 and 2-278 of Tax
Forms Guide 2000.)
Full automation for the
Earned Income Credit
No entries required on Schedule EIC. Thanks to a major redesign of
our handling of the Earned Income Credit, you are no longer required to supply
additional child or income information on Schedule EIC. The computation of
the credit and the printing of the schedule are now fully automatic based
on information available elsewhere in the return. However, some of you have
overlooked the new entries that are relevant to a proper computation of the
credit.
… but watch these entries. Because the IRS instructions for Form
1040 don’t tell the whole story, it is easy to overlook the impact of
some entries for the return. We’ve detailed the related entries in the
shaded box on page 1-7 of the current Tax Forms Guide, but they bear highlighting
here:
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On the Control Form: Your entries for SSN, residency, and
qualification as a child of another taxpayer are all critical to qualification
for the Earned Income Credit, per page 1-7.
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On the Dependents’ Worksheet for line 6c of Form 1040:
This is the most critical part of qualification for a credit based on your
support of children. See the details on pages 2-20 through 2-23. Also see
our Customer Service Memo CSTP0002, which is available
from our web site at www.howardsoft.com.
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Elsewhere on Form 1040: Other entries that affect the Earned
Income Credit include the W-2 Worksheet for lines 7a and 7b, the Pension
Worksheets for lines 15 and 16, other income above line 21, nontaxable earned
income above line 23, and other adjustments above line 32. See page 1-7 for
details.
You may be surprised to get a credit. The Earned Income Credit is
limited to taxpayers with investment income up to $2,350, but what’s
included in that income changed last year. It no longer includes long-term
gains on Form 4797. As a result, more taxpayers are eligible for the
credit than in the past. Although the IRS often overlooked this change and
sent erroneous notices to some taxpayers who used Tax Preparer last
year, the IRS has now changed its instructions in Pub. 590 to agree
with our computation!
Due diligence satisfied without Form 8867. Paid preparers should note
that the software satisfies the due diligence requirements by including all
information in Form 8867. See page 2-133 and 2-134 for details.
Help on the
web
Don’t forget our web page for even more help. On our home page
(www.howardsoft.com) you’ll find:
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Customer Service Memos. In our What’s New
section you’ll find a direct link to our Customer Service Memos. These
memos are written each year based on current customer service experiences.
Memos for this year are: restrictions on e-file entries, entries for
Earned Income Credit, entries for Child Care Credit, and cautions for returns
translated with the pre-release which use Form 5329 or 8606.
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IRS Forms and Publications. In our Links
to the IRS section you’ll find direct links to nearly every
IRS form or publication you may need. You can download them in a number of
formats. For fastest download, we recommend the pdf format, which requires
Adobe’s Acrobat Reader (available free). You’ll get on-screen forms
and instructions that can be printed on any Windows-compatible printer.
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State Forms and Publications. Many states have sites similar to the
IRS sites, with on-screen and printable forms and publications. In our
Links to other states section you’ll
find a link to a directory of state sites.
Let Us Help … with our free Customer Service
In spite of congressional promises of simplification, tax returns get more
complicated every year. This means that your tax software must handle more
each year and numerous changes must be made. As a result it's no surprise
when "the way I've done it for years" no longer works. Tax software is complex,
and we don't expect you to be an expert in using our software. That's why
we encourage your calls (or fax or e-mail) when a change in the tax laws
or the software causes you a problem. Furthermore, we have live customer
service to help you, not machines designed to answer only the simplest questions.
And we work hard throughout the tax season to determine ways to get around
difficulties with special returns, and sometimes make mid-season improvements
to the software. But only if you contact us can we give you the best possible
solution to your problems. |
SURVEY: Manuals … on-screen or paper?
An on-screen version of our annual Tax Forms Guide was available this year
for the first time (on CD-ROM), and we'd like to know how you liked it.
Please complete the on-line survey by clicking here |
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