Don’t sweat it! Update NOW and let Tax Preparer® handle all the changes. A year-end tax bill is poised to cause as much confusion as last year, since IRS forms and instructions will already be printed and mailed before the new bill is enacted. This tax bill will patch the AMT for one more year to keep millions of middle-income taxpayers from being hit by it, but you can expect other tax changes as well. But you needn’t worry (as long as you get your update order in) because HowardSoft is ready to implement any last-minute changes within days of their release.

Changes galore ... and more to come!

Advance drafts from the IRS indicate a plethora of changes, even though only one major tax bill was enacted this year (the Small Business and Work Opportunity Act of 2007, which we reviewed in our last issue of HowardNews). Most changes stem from prior bills, with their multi-year schedules of changes. Well, we and the IRS are well aware of all the changes from the latest and prior bills, and the IRS has provided advance drafts of most forms based on those bills. But … you guessed it … another year-end tax bill is in the works! This means that once again the information in forms and instructions mailed to taxpayers will be inaccurate and incomplete, especially where they relate to the AMT and tax credits. We already know from last year what confusion such late legislation can generate, with supplemental IRS instructions that most people never see, forms pulled from release and revised by the IRS, and some forms released for the first time well into the tax season.

Why another late tax bill? Blame it on politics and the AMT. While talking about it for years, Congress has never come to grips with the defects of the original Alternative Minimum Tax law, which failed to index with inflation exemptions for AMT income. Instead, Congress has patched the AMT in recent years by temporarily raising the exemptions every year since 2000. In fact, the original $45,000 exemption for joint filers reached $62,550 for 2006 for joint filers. But as the law stands now, the exemptions would drop back to tax year 2000 levels. Since millions of middle-income taxpayers would suddenly be hit with this tax if the current law stands, Congress is sure to pass a law that patches the AMT once again for 2007. The bill will likely renew some expired credits as well, and may change other details of the AMT, so limitations on several credit forms could change as well.

IRS to delay critical forms

Because of the prospect of this year-end tax bill, the IRS has pushed the scheduled release for a number of forms to December 31, including:

• Schedule R – Credit for the Elderly or Disabled
• Form 1116 – Foreign Tax Credit
• Form 2441 – Child and Dependent Care Expenses
• Form 5695 – Residential Energy Credits
• Form 6251 – Alternative Minimum Tax
• Form 8396 – Mortgage Interest Credit
• Form 8839 – Qualified Adoptive Expenses
• Form 8859 – D.C. First-Time Homebuyer Credit
• Form 8863 – Education Credits
• Form 8880 – Credit for Qualified Retirement Savings Contributions

These are certainly not obscure forms, and yet they are not even planned by the IRS to be released before the end of the year! And since the IRS often misses their planned release dates, some of these forms could be delayed by the IRS well into 2008.

You’ll get them in your software within days of their release. As you may recall, we had an even worse situation last year because of the "surprise" year-end tax bill that affected so many forms already released and printed by the IRS. Yet HowardSoft provided updates within days of IRS releases of revised instructions and revised forms. Therefore, our record speaks for itself … we can update your software faster than anyone else, each time the IRS releases another form or revises any instructions.

Don't try this alone!

With all the changes we see in the tax forms and instructions, this is certainly not a year to try to handle the changes without Tax Preparer. Based on our look at advance drafts from the IRS, here’s what you can expect for the upcoming tax season:

• Educator expenses and tuition and fees deduction return to Form 1040 – The adjusted AGI section of Form 1040 will revert back to the design for 2005, thanks to last year’s year-end tax bill. The arcane procedure for deducting educator expenses and tuition and fees on lines that carry labels for unrelated deductions is gone. However, you will now have to file a new Form 8917 for any claims for the tuition and fees deduction. (We’re adding Form 8917 to all levels of the software.)
• A penalty tax for HSAs – A new section is added to Form 8889 for computing an additional tax for failure to maintain proper coverage in your Health Savings Accounts (HSAs). A box is added to Form 1040 to indicate its inclusion in the main tax line (line 44).
• New complexities for limitations on credits – The order in which credits can be taken and the effect of the AMT on them have changed. While these changes affect Form 1040 only in the order in which credits appear on the form (lines 47 through 54), they materially alter how the tax liability limit is figured on many forms, including Schedule R and Forms 3800, 5695, 6478, 8396, 8839, 8859, 8863, and 8880.
• Another form for unreported social security and Medicare tax – The new Form 8919 is designed for employees whose employers did not deduct these taxes from their wages, usually because of misclassification as a contractor. A box is added to Form 1040 to indicate its inclusion in line 59.
• New refundable credit for prior-year minimum tax – Form 8801 now has a credit that can be refunded to you when you have no tax liability. It is reported on line 71 of Form 1040, replacing the credit for telephone excise tax which was available only for tax year 2006.
• Schedule A redesigned again – Eliminating the confusion of last year’s design, which was caused by the late passage of the tax bill that renewed the deductibility of sales tax, Schedule A is reverting back to the design for tax year 2005. Special codes are no longer required in completing the schedule, and the information in the separate IRS Pub. 600 is now a part of the Schedule A instructions. (A line for deducting qualified mortgage insurance premiums is added as well.)
• No more partnership return for married joint owners of a business – Contrary to prior law, a married couple is no longer required to file a partnership return (Form 1065) for a non-corporate business they jointly own and run. They now can each prepare a Schedule C or F that reflects their share in the business.
• Katrina victim relief gone – Most provisions relating to Hurricane Katrina have now expired, so some forms no longer exist and others are simplified. Form 8914 is now obsolete and the completion of Forms 1116, 2210, 4684, 6251, and 8829 is simplified.
• Last year’s simplifications reversed for Forms 5884 and 8846 – The IRS had admirably simplified many credit forms last year by passing most business credits through Form 3800 and removing limitations to tax liability from the associated credit forms. But some of those credits now require the separate calculations performed by the prior designs, so there are fewer credits reported on Form 3800 and there are more that use stand-alone forms, including Forms 5884 and 8846.
• No more favors for electric vehicles – Surprisingly, there is no Form 8834 (Qualified Electric Vehicle Credit) for 2007 and the raised ceilings on depreciation for electric cars (triple the usual ceilings for cars) no longer apply (affecting Forms 2106 and 4562). However, we’re adding Form 8910 to Standard and Premium Level for credits for hybrids and other alternative fuel cars.
• AMT exemptions in limbo – Because legislation that would patch the AMT for 2007 does not yet exist, the IRS has drafted Form 6251 using the low exemption levels that existed for tax year 2000. We expect, however, that the widely-anticipated year-end tax bill will raise the exemptions to 2006 levels or higher to avert a political upheaval from middle-income taxpayers.

In addition to the unique changes described above, the usual annual indexing with inflation exists throughout the new forms, and ceilings are once again raised for section 179 depreciation.