Tax Season is Looming - Are You Ready?

by Surgent McCoy Tax Seminars
Pursuit, Year End 2006

For many firms, tax preparation doesn't begin until January, when tax-return-preparation software arrives at the office. But there is much that can be anticipated during football season that can help practitioners avoid February fumbles when the rush is on. Gaining a firm understanding of enacted and sunset legislation will reduce anxiety and allow the tax preparer to hit the ground running with confidence in January.

This year is marked by several new directives brought about by last year's Energy Act as well as this year's Taxpayer Increase Prevention Act and Pension Protection Act. Some provisions have been extended for this year; others were not. The debate continues over the eventual fate of the so-called "extender" trailing legislation, with lawmakers on both sides promising to resurrect politically popular provisions that are now in limbo.

Here are some new points practitioners should be aware of. One is the stealth reduction in the phase-out of personal exemptions and itemized deductions. These phase-outs were enacted in the 2001 tax bill for implementation in 2006. Now, only two-thirds of the amount determined to be phased out under the traditional rules will actually be phased out. This will mean lower taxable incomes for some clients, but it may increase alternative minimum tax (AMT) exposure since AMT income will remain unaffected by increased personal exemption or miscellaneous itemized deductions. A long-term solution has not appeared on the horizon and, as a result, planning for 2007 may be greatly affected.

Other, more immediate, matters may prove to have even more negative effects for taxpayers. For example, a change in the threshold age triggering the kiddie-tax provision was enacted in May, retroactive to the beginning of the year, with no transition.

These issues illustrate why preparing for tax season early is a good idea. You can avoid confusion and obtain tools that will help you score a touchdown for your clients.