I almost forgot one of the "Oh, by the way" announcements at this year's e-filing seminar. Taxpayers who mail in Kansas returns could wait 8 weeks for their refund. They will be processing those returns as they can.
Tax practitioners across the county are breathing a sigh of relief now that the IRS has released a start date for the filing season. In a press release (IT-2007-209), the IRS expects to begin processing most returns on January 14th. However, there are 5 forms that can't be processed until mid-February.
Form 8863, Education Credits
Form 5695, Residential Energy Credits
Form 1040A's Schedule 2; Child and Dependent care Expenses for Form 1040A Filers.
Form 8396, Mortgage Interest Credit
Form 8859, DC First- Time Homebuyer Credit
The IRS expects to being processing returns with these forms on February 11th. The IRS cautions taxpayers to make sure they update their tax software to insure they have the latest AMT changes. Since the tax forms had to go to print before Congress passed the AMT patch, taxpayers should make sure they have the latest version of the forms they need. They can check at www.irs.gov.
In a conference call with its industry partners today, the IRS announced that the filing season should start in mid-January with delays on specific forms that are part of the AMT patch Congress just passed. While still vague to the exact date, the IRS's news is good news for offices like mine. The dates being thrown around range from January 11th to 18th. Which means that most early refund taxpayers will be able to file their return soon after they receive their W-2s. There will be some forms which will be delayed until the middle of February. But the IRS did not specify which forms would have to be delayed
The IRS has begun to release some of the affected forms to the software providers so they can begin programing their software. The rest of the AMT related forms are promised the middle of next week. More details on the delays are expected then.
Once again, I will be offering online filing through a site set up by my software company, Drake Software. The costs are $9.95 for an EZ, $9.95 for and A or 1040 and any states for $3.95 more. You can access the start page here.
Online filing won't begin until the IRS okays it, but the web site can help you with planning for taxes. Drake provides a tax estimator and a wide variety of financial and tax calculators. So while we are waiting for the IRS to clean up after Congress' mess, you can do a little planning.
While I was out playing hooky (and catching up errands postponed by the recent bad weather), the House voted to accept the Senate's version of the AMT patch of 2007. This is the version that does not pay for the revenue lost by the patch. But the House really didn't have a choice. If they stood firm to fiscal responsibility, millions of taxpayers would have paid a much higher tax bill for 2007. This is just a one year fix so the debate is not over. It is just postponed until after the elections.
The problem with the getting an AMT patch so late is that the start of the filing season will delayed while the IRS changes their computers to reflect the new law. The best case is a 7 weeks delay which would put us about February 7th. The question is will every return be delayed or part of them? Hopefully, the IRS will tell us soon. However, I have a feeling that they may delay until the bill has been officially signed by the President.
We are still waiting for Congress to decide what it is going to do about the Alternative Minimum Tax (AMT). Unfortunately, the process of protecting millions of Americians from higher taxes in 2007 has degenerated into a game of chicken.
The issue is the idea of "revenue neutrality." That is: if you cut taxes you have to make up that income by cutting expenses or increasing other taxes. A rule Congress passed soon after the Democrates came to power. Both houses of Congress have versions that will extend the AMT patch for another year. The House's bill makes up the revenue lost by the AMT changes with shoring up some loopholes and changing the rules for hedge fund managers. The Senate version patches AMT but does not come up with the loss in revenue. They say they don't have to because the AMT is a bad tax. And even though we are spending the money it brings in, we don't have to make up the income because it is bad. That rational almost belongs on the IRS's Dirty Dozen Tax Avoidance Schemes.
The bottom line is someone is going to have to blink soon or millions of taxpayers are going to get a nasty surprise next year. Congress goes home on Friday. If there is nothing by then, we are back to 1969 AMT rules and the filing season should start on time. If we do get a patch, there will be delays in filing. The extent of the delays will depends on the IRS.
This stupidity (the process should have been started months ago) is keeping me off-balance. Not knowing what will happen is forcing me to hold off on so much of pre-season work. The lead story on my client newsletter will either warn about AMT or explain the filing delays we expect. I can't decide anything about early season advertising until I know when the season will start. The same with hiring and cash flow. I find that I am looking at Friday like an early Christmas when I will get a gift of balance.
This was the Letter to the editor I sent to my local paper. I should have done it a week ago when the deadlock became evident.
Minimum Tax (AMT) was enacted in 1969 to catch the many wealthy Americans who
were not paying any tax due to tax breaks. Today the AMT no longer forces the
wealthy to pay their share, but is set to hit millions of middle class families
when they prepare their 2007 tax return. AMT was never indexed for inflation
but deductions and exemptions have continued to increase. The result is today a
family will pay less in tax than they did 10 years ago on the same amount of
income. At the same time, they are more likely to trigger AMT. A family with 4
children making $70,000 will have tax on their 2007 tax return of $5056. But
the AMT on the same amount of income is $6500. They will pay $1444 more in
taxes for 2007. A nasty surprise over 2006.
The cause of the
surprise is Congress. For the last few years, Congress has been passing patches
to AMT instead of fixing the problem. The last AMT patch expired on December 31, 2006.
All year Congress
has assured us that they plan to extend the patch for 2007. However, with just
days to go before they adjourn for Christmas, they still have not gotten an AMT
bill passed. If there is no patch, 20 million more taxpayers will be hit with
AMT over 2006. The increase is estimated to average $2000 per return. This will
hit married couples with children hardest. It does not take much income to
trigger AMT. A couple with 4 children with as little as $57,000 will pay about
$14 in additional tax. It goes up from there.
your Representatives, Senators and the White House and demand that they stop
playing politics and pass an AMT patch. There are bills dealing with AMT in
Congress now but they need a compromise and members of both parties putting
down the rhetoric and thinking of the people who elected them first.
I had heard the numbers from the IRS Oversight Report but until I played with them on my tax software, I didn't realize how little income it would take. A family with 3 kids-$62,000, 2 children - $71,000, 1 child - $71,000 and no kids - $77,000. AMT doesn't give any breaks to seniors or the blind. And all these figures were using the standard deduction. A taxpayer who itemizes deductions could have a higher chance to trigger AMT. The AMT patch should have been done months ago. Now, politics and election rhetoric has taken over and may cause millions of average Americans money they worked hard to earn. Now is the time to contact your elected officials and get them working.
As return preparation cost have gone up, many people have pushed the use of volunteer programs. In fact, the IRS provides training materials and support to groups like VITA (Volunteer Income Tax Assistance Program) and TEC (Tax Counseling for the Elderly). How good are these programs? According to the Kiplinger Tax Letter, Treasury Inspectors found errors in 56% of the volunteer returns they examined. While the survey was small, the errors found in the several thousand returns they audited have convinced the IRS to expand their review.
A reader should seek advice from an independent tax adviser with respect to the information on this blog based on the reader’s particular circumstances. This advice is intended to be general information and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS regarding the transaction or matters discussed here.