ProSeries Frequently Asked Questions

Products Affected:

• ProSeries
• ProSeries Basic Edition

The following is a summary of the Alternative Minimum Tax (AMT) and other significant tax law and form changes for tax year 2007. This page will be updated with the latest AMT information as it becomes available.

AMT Law Enacted

On December 19, 2007, Congress passed the Tax Increase Prevention Act of 2007. The President has since signed the bill into law. This legislation increases the exemption amounts for AMT and allows certain credits to offset AMT.

ProSeries/1040 v2007.02 and ProSeries Basic/1040 v2007.01 Updates

ProSeries/1040 v2007.02 and ProSeries Basic/1040 v2007.01 updates became available online on January 2, 2008. These updates do not include final versions of the 12 forms related to the Tax Increase Prevention Act of 2007.

Future Updates for ProSeries/1040 and ProSeries Basic/1040

To find out when these impacted forms are expected to become final, please go the Federal 1040 Release Dates page at http://www.proseries.com/support/releasedates/index.aspx?pid=IND and click the appropriate product name to view the Forms Availability list.

When the Internal Revenue Service Will Accept Returns

The Internal Revenue Service announced that, on January 11, 2008, it expects to be able to begin accepting taxpayers' returns (e-file and paper) that do not involve the five AMT-related forms listed below.

The IRS has targeted February 11, 2008, as the potential starting date for taxpayers to begin submitting the five AMT-related forms, listed below, affected by the legislation. The February date allows the IRS enough time to update and test its systems to accommodate the AMT changes without major disruptions to other operations related to the tax season.

The February start date is applicable for taxpayers using any of these five forms:

• 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, District of Columbia First-Time Homebuyer Credit (ProSeries only)

While these five forms require significant additional reprogramming due to the AMT patch, the IRS has been able to reprogram its systems to begin processing seven other AMT-related forms, including Form 6251, Alternative Minimum Tax - Individuals. Taxpayers filing these seven forms should not experience delays in filing, and the IRS expects to begin accepting those returns starting on January 11, 2008.

Electronic returns involving the five AMT-affected forms will not be accepted until systems are updated on February 11, 2008. Similarly, paper filers with those affected forms should wait to file their returns until February 11, 2008, as well.

The IRS urges affected taxpayers to file electronically in order to reduce wait times for their refunds. E-file with direct deposit gets refunds in as little as 10 days, while paper returns take four to six weeks.

"E-file is a great option for everyone, especially if they are affected by the AMT," said Richard Spires, IRS Deputy Commissioner for Operations Support. "Filing electronically will get people their refunds faster, and e-file greatly reduces the chances for making an error on the AMT or other tax issues."

What You Should Do

Other 2007 Tax Law and Form Changes

• Tax preparer penalties have been increased. If any part of a tax liability understatement is due to an unreasonable position, the preparer must pay greater of the $1,000 or 50% of the income derived by the preparer in preparing the return.
• Form 8917, Tuition and Fees Deduction, is new for tax year 2007.
• Form 8919, Uncollected Social Security and Medicare Tax on Wages, is new for tax year 2007.
• Form 8271, Investor Reporting of Tax Shelter Registration Number, is obsolete and has been removed.
• Taxpayers can no longer deduct cash contributions, regardless of the amount, without a bank record or written communication from the charity. The written communication must include the name of the charity, date of the contribution, and amount of the contribution. For more information, see Publication 526.
• If Form 8913, Credit for Federal Telephone Excise Tax Paid, was filed in 2006, portions of the federal telephone tax refund will be taxable in 2007. The personal interest portion of the refund and the entire business portion of the refund will be taxable.
• The 2007 standard mileage rate for business use of a vehicle is 48.5 cents a mile, up from 44.5 cents a mile in 2006.
• Medical and moving miles are deductible at 20 cents per mile.
• The IRA contribution for 2007 remains unchanged at $4,000 and the catch-up provision for taxpayers over 50 also remains unchanged at $1,000.
• For 2007, the IRA deduction begins to be phased-out at $83,000 for married taxpayers filing joint and qualifying widower, $52,000 for all other filing statuses.
• Foreign tax credit changes - The number of categories has been reduced from ten to five.
• Mortgage insurance premiums paid on contracts issued during 2007 are deductible as an itemized deduction. The deduction begins to phase-out when adjusted gross income exceeds $100,000. No deduction is allowed if AGI exceeds $109,000.
• A portion of the prior year minimum tax credit may be refundable. For more information, see Form 8801.
• Form 8453, U.S. Individual Income Tax Declaration for an IRS e-file Return, is no longer a signature form. Beginning in tax year 2007, Form 8453 is only used as an attachment for certain forms that must be filed on paper.
• The maximum Section 179 deduction has increased to $125,000 and the property threshold has increased to $500,000.
• The deduction rate for domestic production activities increases from 3% to 6%.
• If a taxpayer participated in a 401(k) plan and the employer filed for bankruptcy, the taxpayer may be able to contribute an additional $3,000 to an IRA. To qualify, felony indictments must have been made in relation to the bankruptcy filing. Other conditions must be met. The taxpayer making this election cannot also use the higher contribution and deduction limits for individuals age 50 or older.
• Retired public safety officers may elect to exclude up to $3,000 of eligible retirement distributions from income. The retirement distribution must be from a government plan and be transferred directly to pay accident, health, qualified long-term care insurance premiums for taxpayer, spouse, or dependents.
• Designated nonspouse beneficiaries of a deceased employee’s retirement plan may be able to roll over distributions tax free. The transfer must be a direct trustee-to-trustee transfer to beneficiary’s IRA.
• Maximum deductible SEP, profit sharing, and money purchase contributions increases to $45,000, up from $44,000 in 2006.
• Maximum elective deferral contributions (e.g. 401(k) contribution) increases to $15,500 ($5,000 for catch-up).
• The maximum amount of income subject to SE tax is $97,500, up from $94,200 in 2006.
• Itemized deductions and personal exemption will begin to be phased-out at $156,400, up from $150,500 in 2006.
• Personal exemption amount is $3,400, up from $3,300 in 2006.
• For health savings account (HSA) purposes, the minimum annual deductible of a high deductible health plan (HDHP) increases to $1,100 ($2,200 for family coverage) and the maximum annual deductible and other out-of-pocket expenses limit increases to $5,500 ($11,000 for family coverage). The annual deductible limitation for contributions to a HSA based on the amount of the taxpayers health insurance deductible is repealed. For 2007, the maximum HSA deduction increases to $2,850 ($5,650 for family coverage) regardless of the amount of health insurance deductible. The maximum additional deduction for individuals age 55 or older increases to $800.

Additional Information

• IRS Publication 553 on the IRS Web site.
• Highlights of 2007 Tax Changes on TaxAlmanac.