Congress Passes Tax Act Affecting Several Key Tax Provisions

On December 9, Congress approved the Tax Relief and Health Care Act of 2006. This bill (H.R. 6111) extended or modified several tax provisions that expired at the end of 2005. Among the changes is a two-year extension of the following items:

  • Research Tax Credit
  • Work Opportunity Tax Credit
  • Welfare-to-Work Tax Credit (In 2007, the Work Opportunity Tax Credit and Welfare-to-Work Tax Credit will be combined.)
  • Tuition and fees deduction
  • Educator expenses deduction
  • State and local sales tax deduction (This is particularly useful in the nine states without state income taxes: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming.)
Other extensions include:
  • New Market Tax Credit for one year
  • Earned Income Tax Credit for Combat Pay through 2007
  • Qualified Zone Academy Bonds through 2007
The bill also extends for one year a number of energy related tax provisions that were set to expire at the end of 2007.

Taxpayers will see significant changes to the Health Savings Account (HSA) such as:
  • Allowance of rollovers from flexible spending accounts and health reimbursement arrangements
  • Repeal of annual plan deductible limits
  • Increase in part-year coverage contribution limits
  • Allowance of a one-time rollover from IRAs
An Alternative Simplified Research Credit will be available in 2007. This new credit will not use gross sales as a factor in the regular credit.

Also, taxpayers may deduct premiums paid for mortgage insurance premiums when they itemize. This deduction will only be available for contracts issued in 2007. Income limits will apply.

The tax forms issued by the IRS and individual states do not reflect many of these last minute changes. At Drake Software, we anticipated the passage of Tax Relief and Health Care Act, and your most recent software CD will already reflect the extensions and modifications this act includes.

Late year and retroactive tax law changes are unavoidable during tax season. The Drake updating system allows us to get these changes to you via small “patches” so you can be sure you always have the most current software version available. We recommend that you update your software frequently during tax season, and you should also note the Drake Broadcast e-mails that alert you about important tax changes and situations that could affect your practice. Keeping you informed and your software up-to-date is one of our top priorities at Drake Software.

From January 2007

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