HowardSoft
TEXT SIZE:
Print Close
Use smallest TEXT SIZE setting when printing.
15% off until July 15th.

Advance Order Specials ... 15% off until July 15th

It may not be the first thing on your mind now that your tax practice consists only of extension returns, but there’s good reason to plan ahead. If you order now you can get 15% off all software, including e-file specials. Click Here to order securely over the internet, or by phone, fax, or mail. We accept all major credit cards. There’s no better time to get ready for next year.


HowardNews
 
by HowardSoft®
Professional software at personal prices.
Spring/Summer 2006
 

Major tax bill enacted

The Tax Increase Prevention and Reconciliation Act of 2005, signed into law on May 17, 2006, includes $90 bil- lion in tax breaks and $20 billion in tax increases. It in- cludes not only AMT relief for one more year and continued breaks for investors and small businesses years from now, but also an expansion of the “kiddie tax” to older children and a tightening of foreign earned income and housing ex- clusions. However, in spite of early publicity to the con- trary, it does not include extensions to 2006 of several popular breaks, including the research credit, work credits, higher education expense deduction, state and local sales tax deduction, new markets credit, electric vehicle credit, and several more. They were dropped in order to keep the net cost of the bill down to $70 billion and connected to the 2005 budget, but are expected in a follow-up bill. (For the full text of the bill as enacted, click the following link: HR4297final.pdf (105.4 KB). You must have Adobe's Acrobat Reader installed on your computer in order to read this 29-page tax bill.)


The good and the bad for 2006

Most tax breaks in the bill do not apply to tax year 2006 but rather the end of the decade. Instead, unpublicized tax in- creases apply and hit some taxpayers very hard in 2006.

The good news...

AMT steamroller paused. The biggest breaks for 2006 ap- ply to the alternative minimum tax (AMT), slowing down the expected large increase in number of taxpayers hit by the AMT. These changes will affect the 2006 Form 6251.

  • Personal credits to be applied against AMT for 2006. This benefit, extended to only 2004 and 2005 in the last broad-based tax bill (the Working Families Tax relief Act of 2004), applies to such credits as those for the elderly and disabled, adoption expenses, child tax, and higher education. Without this tax break a large number of middle class families would have found themselves hit by the AMT. (The Senate amendment to extend this benefit to 2007 as well was rejected.)
  • AMT exemptions increased. Originally scheduled to drop to pre-2004 levels, the special increases for 2004 and 2005 are extended to 2006 and further increased. The new levels are $62,550 for married taxpayers (up from $58,000) and $42,500 for singles (up from $40,250). Without this bill the levels would have dropped to $45,000 and $33,750, respectively.

Liberalized depreciation/amortization for music. Clearly a special-interest provision, the cost of acquiring or creating musical works can now be amortized over 5 years. The 10- year income forecast method is no longer required. This change will affect your use of the 2006 Form 4562.

Future change in Roth IRAs impacts tax planning NOW. Starting tax year 2010, you are no longer disallowed from converting a traditional IRA to a Roth IRA when your in- come (AGI) exceeds $100,000. Even though not applicable until 2010 and considered a revenue-raiser by Congress, high-income taxpayers can benefit from this change. Those who cannot make tax-free contributions to their traditional IRAs because of their high income can make nondeductible contributions (up to the maximums) and then convert the traditional IRAs to Roth IRAs in 2010. They’ll be taxed only on earnings on the account and can spread the taxable amount over 2 years. (With a Roth IRA, earnings are tax- free and withdrawals are never required.) This change af- fects the use of the 2006 Form 8606, where nondeductible contributions to traditional IRAs must be reported.

...and the bad.

Kiddie Tax hits more families. Until now, the tax code prevented you from benefiting from putting assets in your child’s name only if the child was under 14 years of age. But starting tax year 2006, the age is raised to 18. Parents who had planned to sell a child’s portfolio when the child reaches age 14 will now have to wait until age 18 to bene- fit from their child’s lower tax bracket. This change affects Forms 8615 and 8814 for 2006.

Foreign earned income and housing exclusions tightened. Taxpayers who earn income abroad will be hit harder:

  • Foreign earned income exclusion now indexed with inflation. Starting in 2006, the maximum exclusion is in- dexed with inflation from the 2005 figure of $80,000 to $82,400 for 2006. (Formerly, indexing was not scheduled to start until 2008.) This is the good news.
  • Foreign housing allowance reduced. The base above which housing expenses are deductible is now 16% of the maximum foreign earned income exclusion. The base for 2006 is $13,184, up from $12,447 for 2006 before the law change. That’s not so bad, but there is a new cap on the maximum exclusion allowed … $11,536 for 2006 (14% of the maximum foreign earned income exclusion). (Formerly, there was no cap on the housing expenses at all.)
  • Tax increase on all other income. Income remaining af- ter the foreign exclusions are taken will be taxed at higher tax rates. In figuring the tax rates to apply, the income level before the exclusions will be used. Some taxpayers will be pushed from the 10% tax bracket into the 28% tax bracket as a result of this change!

These changes will affect Forms 2555 and 2555-EZ for 2006 and how tax is computed on Form 1040.

Stricter reporting requirements for tax-exempt bonds. Payers of interest on tax-exempt bonds must now report the payments to the IRS. Although the payments are not tax- able, this reporting should keep taxpayers honest in calcula- tions that are adversely affected by nontaxable income, in- cluding many provisions that depend on a modified AGI.

Up-front payments for offers-in-compromise. After July 16, 2006, when a taxpayer proposes a lower tax to the IRS, the taxpayer will have to make an initial payment at the time of the offer: 20% of a proposed lump-sum pay- ment or the first installment of a proposed installment schedule. (Formerly only a filing fee had to be paid.)


Better news for the future

Other major changes do not apply until later years:

  • For 2007, stricter rules for the domestic production activities deduction. There is a cap on this deduction, new for 2005, amounting to 50% of wages paid. Starting 2007, however, wages used in figuring this cap must be related to domestic production income.
  • Also for 2007, another benefit for musical works. Starting 2007, the gain on the sale or exchange of mu- sical works is taxed at the low capital gains tax rates.
  • For 2008 and 2009, further extension of the raised section 179 ceiling. The maximum sec. 179 expense that can be deducted remains at $100,000 (adjusted for inflation) for another two years. (It would have dropped to $25,000 in 2008 without this change.)
  • For 2009 and 2010, further extension of low capital gains tax rates. The rates in effect for 2008 are ex- tended to 2009 and 2010, including a 0% rate for low- income taxpayers and a 15% maximum rate overall.
  • For 2010, conversion to Roth IRA at any income level. Starting 2010, the former restriction to taxpayers with AGI under $100,000 is lifted. Anyone can convert a traditional IRA to a Roth IRA under the new rules, and can spread any tax on the conversion over two years.
  • For 2011, withholding from government payments required. Starting 2011, government agencies must withhold 3% of all payments made for services or property. (Interest, classified contracts, real property, and welfare-related payments are exempt.)

Another tax bill is expected to renew several credits that expired at the end of 2005. Be sure to check our website (howardsoft.com) regularly for the latest news.


Advance Order Form for 2007 Editions now on-line. You'll get 15% off all software, including e-file specials, but remember that this Advance Order Special expire July 15, 2006. Click Here to order securely over the internet. (You can also order by phone, fax, or mail. We accept all major credit cards in addition to personal or business checks.)

Contents at the three software levels. To help you decide which software level is right for you, a chart of contents for each level follows. Note that we have added two popular forms to the Standard Level and have removed from the Economy Level features that are of interest only to serious tax professionals.

Comparison chart for the three software levels for the 2007 Edition.

(Table is based on Windows CD-ROM versions of the software.)

Economy

(Individual)

Standard

(Professional)

Premium

(Professional Plus)

Functions:

Updates on the web... Free on-line updates keep your software up-to-date throughout tax season. (Charge for update disks is $15 for each disk requested.)

X X X

Interactive data entry... Calculate as you enter data using smart on-screen forms and worksheets.

X X X

Unlimited number of returns... Eliminates 15-return (one volume) limit of Economy Level.

  X X

True-batch/Pre-format data entry... Clerical personnel enter data from data sheets you prepare.

  X X

Volume-free file management... Select return from on-screen list by client name, filename, SSN.

  X X

On-screen Documentation:*

  * All documents are printable too!

User’s Guide... 300 pages of operating instructions and tutorials.

X X X

Tax Forms Guide... 500 pages of line-by-line instructions on completing on-screen forms.

X X X

IRS forms and instructions... Up-to-date forms from the IRS.

  X X

IRS publications... Useful publications for complete answers to tax questions.

  X X

Premium Level Supplement... More than 200 pages of additional line-by-line details.

    X

Printing:

High-speed draft printouts... Text-based facsimiles of official forms for quick and easy review.

X X X

Batch printing... Organized by volumes to print up to 15 returns at a time.

X X X

Client letters... Print professional billing letters to clients and cover letters for returns.

X X X

IRS-approved graphic printouts... Print IRS-like graphics to avoid manual fill-in or transparencies. (All Windows printers supported. High-speed DOS printing also supported for compatible laser printers.)

  X X

Volume-free selection of return... Print a return in any volume from an ordered, volume-free list.

  X X

e-file:

Unlimited e-file... Simple on-line e-file for pros, for a low per-return fee (requires IRS-issued EFIN).

  X X

FREE Customer Service... We’ll help you resolve problems with returns rejected by the IRS.

  X X

Option for lower transmission fees*... Reduce per-return transmission fee to $2.

  X X

Option for NO transmission fees*... Reduce per-return transmission fee to $0.

  X X

Refund Anticipation Loans (RALs)*... Get quick loans for clients based on anticipated refunds.

  X X

Refund Checks (QIK checks)*... Get your fees deducted from clients’ refund checks.

  X X

  * Additional one-time fee applies, good for the entire tax season.

 

IRS forms:

Basic tax form set for employees, investors, and farm and non-farm businesses... Form 1040 and Schedules A, B, C, C-EZ, D, EIC, F, H, J, R, SE, Forms 2106, 2106-EZ, 2210, 2441, 3468, 3800, 3903, 4562, 4684, 4797, 4835, 4868, 5329, 6251, 6252, 8283, 8582. 8606, 8615, 8812, 8814, 8829, 8863, 8880, 8901, 8914, 1040-ES, 1040X, 1040-V.

X X X

Forms for e-file... Forms 8453, 8879, W-2, W-2G, 1099-R, RAL/QIK Application.

  X X

Forms for serious investors... Forms 1116, 4952.

  X X

Forms for other credits... In addition to credit forms already in all levels, Forms 4136, 5884, 6478, 6765, 8396, 8586, 8801, 8834, 8839, 8846, 8859, 8861, 8885.

    X

Forms for recapture taxes... Forms 4255, 8611, 8828.

    X

Forms for foreign income... Forms 4350, 2555, and 2555-EZ.

    X

Forms for sophisticated investors... Forms 4952, 6198, 6781, 8271, 8594, 8815, 8824.

    X

Forms for other taxes and deductions... Forms 4137, 4970, 4972, 8853, 8889.

    X

Special support forms... Forms 1310, 2120, 8332, 8379, 8862.

    X

Useful stand-alone forms... Forms 2848, 8822.

    X