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Congress recently passed H.R. 6111, the Tax Relief and Health Care Act of 2006. President Bush signed the bill into law on December 20, 2006.
On February 6, 2007, the IRS announced that it has started processing tax returns that claim key tax provisions renewed by legislation enacted in December and urged taxpayers not to overlook the one-time telephone tax refund. To learn more view IRS News Release IR-2007-26 on the IRS Web site.
On January 8, 2007, the IRS announced that it will begin processing both e-file and paper tax returns on February 3, 2007 that include claims for the major "extender" provisions, including deductions for state and local sales taxes, higher education tuition and fees, and educator expenses. Any other tax returns for individuals that do not claim the extender provision can be filed as normal this month.
The February 3, 2007 date allows the IRS enough time to update its systems to accommodate the tax law changes without disrupting other operations tied to the tax filing season.
"The vast majority of taxpayers will not be affected by these changes, and they will not notice any difference as they start filing tax returns this month," IRS Commissioner Mark W. Everson said. "The IRS urges people claiming the extender deductions to file electronically to reduce the chance of making an error." To learn more view IRS News Release IR-2007-03 on the IRS Web site.
Below is a summary of the instructions issued by the IRS for taxpayers filing a paper 1040 and claiming the key extender provisions:
State and Local General Sales Tax Deduction
Note to ProSeries Users: In the ProSeries software, a smart worksheet has been entered on Schedule A above line 5. This Smart Worksheet will assist you in calculating the Sales Tax deduction for line 5 of Schedule A. This feature will work like it did for tax year 2005. The new Sales Tax Tables from the IRS have been implemented into the program. A total tax rate for up to three states can be entered in the Global Options. Unlike tax year 2005 there are no checkboxes on Schedule A to indicate which option is on line 5. To accommodate for this the program will print "ST" to the left of line 5 if the sales tax is being used.
Higher Education Tuition and Fees Deduction
Note to ProSeries Users: In the ProSeries software, the Tuition and Fees Expenses are entered on the Education Tuition and Fees Worksheet. This worksheet optimizes this expense between the Hope Credit, the Lifetime Learning Credit, and the Tuition and Fees Deduction. If the deduction is the best alternative, the program will send the amount to the Smart Worksheet above line 35. From the Line 35 Smart Worksheet, it will be added to any amount coming from Form 8903, Domestic Production Activities Deduction. If the amount on line 35 is entirely Tuition and Fees Deduction a "T" will print next to the line. If both items are present a "B" will print, as well as a supporting statement.
Educator Expense Adjustment to Income
Note to ProSeries Users: In the ProSeries software, the Educator Expense Worksheet has been reinstated in the forms list. Enter the entire Educator's expense on this worksheet. The first $250 will be sent to the Smart Worksheet on page 1 of Form 1040 between lines 22 and 23. If there is a remainder, it will be sent to the Miscellaneous Itemized Deduction Worksheet. From the Line 23 Smart Worksheet it will be added to any amount coming from Form 8853 and calculated on line 23. The program will print "E" or "B" to the left of the entry. If there is a "B" on this line, a supporting statement will print.
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