Mei-Feng Moe, EA
Mei-Feng Moe (May) is a
Master Tax Advisor certified by
H&R Block. In addition to
giving tax advice and preparing
income tax returns, she has also
been teaching income tax
courses for a number of years.
She is an Enrolled Agent who
may represent clients before
the IRS. She also holds series 6
and series 63 security licenses.
Master Tax Advisor certified by
H&R Block. In addition to
giving tax advice and preparing
income tax returns, she has also
been teaching income tax
courses for a number of years.
She is an Enrolled Agent who
may represent clients before
the IRS. She also holds series 6
and series 63 security licenses.
Tax season 2008
How new tax laws affect your tax returns
How new tax laws affect your tax returns
Your Master Tax Advisor/Mei-Feng Moe
Alternative Minimum Tax Patch
Late in December, Pres. George Bush signed the Tax Increase Prevention Act 2007,
which provides a one-year patch to the alternative minimum tax. The alternative minimum
tax (AMT) was originally created in 1969 to ensure that about 155 very wealthy families
pay their fair share of taxes. Over the years, because it was not adjusted for inflation, more
and more middle-income people have been hit by AMT. More than 4 million taxpayers
were subject to the AMT in 2006 and 25 million were expected to be affected this year,
had Congress failed to act on the bill to correct the AMT. The one-year patch increased
the AMT exemption amounts to $66,250 for married filing jointly and qualifying widow(er);
$44,350 for single and head of household; and $33,125 for married filing separately. The
patch also allows nonrefundable credits, such as child care credit, child tax credit, saver's
credit, education credit, adoption credit, etc., to offset the alternative minimum tax.
AMT Refundable Credit
On December 28, Congress passed — and the President is expected to sign — the
Technical Corrections Act of 2007 which liberalized the amount of AMT refundable
credit. This credit was first introduced in December 2006 for tax years beginning after
12/20/2006 and before 01/01/2013. Under the TCA 2007, the credit amount is the greater
of $5,000, 20% of long-term unused Minimum Tax Credit, or the AMT refundable credit
amount for the prior tax year. The credit is subject to a phase-out.
Income from Debt Cancellation on Principal Home
The Mortgage Forgiveness Debt Relief Act of 2007 added a new Internal Revenue
Code section 108 (a)(1)(E) which allows an exclusion of income from discharge of
qualified principal residence indebtedness. Effective 01/01/2007-12/31/2009, an
acquisition loan (borrowed for buying, building or improving the residence) up to $2
million, may be excluded from income when the loan is discharged, if the residence is a
qualified main home.
Deduction of Private Mortgage Insurance Premiums
Effective 01/01/2007 through 12/31/2010, private mortgage insurance paid on an
acquisition loan is deductible as an itemized deduction on Schedule A. PMI premiums
paid will be included in form 1098 reporting and is deducted as mortgage interest.
Husband and Wife Small Businesses
The Small Business and Work Opportunity Tax Act of 2007 changed the treatment of
husband-wife businesses. Under prior laws, joint ventures of married couples were treated
as partnerships and were required to file partnership returns using Form 1065. The new
provision permits a husband-wife business to report each spouse's respective share of
business income and expenses as a sole proprietor on schedule C (or schedule F) when
filing a joint return; provided the husband and wife are the only members of the business,
both spouses participate in the business and both elect to have the provision apply.
Employee FICA Tip Credit
Under IRC section 45B, employers in the food and beverage industry may be eligible
for a credit for employment taxes paid on their employees' tip income. The credit amount
is the social security and medicare taxes paid on tip income over the federal minimum
wage rate. (The portion of tips used to meet the federal minimum wage rate does not
qualify.) Under the recently enacted Small Business and Work Opportunity Tax Act, the
credit is figured based on the federal minimum wage in effect on 01/01/2007. Although
the federal minimum wage increased to $5.85 later in 2007, the credit is figured based on
$5.15, the minimum wage as of 01/01/2007.
Delay of Return Processing
Due to the late enactment of the AMT patch, the IRS needs time to update and test its
systems to accommodate the AMT changes. As many as 13.5 million taxpayers using any
of the five forms related to the AMT legislation will have to wait until the IRS completes
the reprogramming. The five forms affected by the AMT patch are: Form 8863, Education
Credits, Form 5695, Residential Energy Credits; Form 1040A, Schedule 2, Child Care
Credit (for 1040A filers); Form 8396, Mortgage Interest credit; and Form 8859, D.C. First-
time Homebuyer Credit. IRS has targeted Feb 11 as the potential starting date for
processing returns with these forms. For the vast majority of taxpayers not affected by AMT
patch, the IRS expects to be able to begin processing returns in mid-January.
Late in December, Pres. George Bush signed the Tax Increase Prevention Act 2007,
which provides a one-year patch to the alternative minimum tax. The alternative minimum
tax (AMT) was originally created in 1969 to ensure that about 155 very wealthy families
pay their fair share of taxes. Over the years, because it was not adjusted for inflation, more
and more middle-income people have been hit by AMT. More than 4 million taxpayers
were subject to the AMT in 2006 and 25 million were expected to be affected this year,
had Congress failed to act on the bill to correct the AMT. The one-year patch increased
the AMT exemption amounts to $66,250 for married filing jointly and qualifying widow(er);
$44,350 for single and head of household; and $33,125 for married filing separately. The
patch also allows nonrefundable credits, such as child care credit, child tax credit, saver's
credit, education credit, adoption credit, etc., to offset the alternative minimum tax.
AMT Refundable Credit
On December 28, Congress passed — and the President is expected to sign — the
Technical Corrections Act of 2007 which liberalized the amount of AMT refundable
credit. This credit was first introduced in December 2006 for tax years beginning after
12/20/2006 and before 01/01/2013. Under the TCA 2007, the credit amount is the greater
of $5,000, 20% of long-term unused Minimum Tax Credit, or the AMT refundable credit
amount for the prior tax year. The credit is subject to a phase-out.
Income from Debt Cancellation on Principal Home
The Mortgage Forgiveness Debt Relief Act of 2007 added a new Internal Revenue
Code section 108 (a)(1)(E) which allows an exclusion of income from discharge of
qualified principal residence indebtedness. Effective 01/01/2007-12/31/2009, an
acquisition loan (borrowed for buying, building or improving the residence) up to $2
million, may be excluded from income when the loan is discharged, if the residence is a
qualified main home.
Deduction of Private Mortgage Insurance Premiums
Effective 01/01/2007 through 12/31/2010, private mortgage insurance paid on an
acquisition loan is deductible as an itemized deduction on Schedule A. PMI premiums
paid will be included in form 1098 reporting and is deducted as mortgage interest.
Husband and Wife Small Businesses
The Small Business and Work Opportunity Tax Act of 2007 changed the treatment of
husband-wife businesses. Under prior laws, joint ventures of married couples were treated
as partnerships and were required to file partnership returns using Form 1065. The new
provision permits a husband-wife business to report each spouse's respective share of
business income and expenses as a sole proprietor on schedule C (or schedule F) when
filing a joint return; provided the husband and wife are the only members of the business,
both spouses participate in the business and both elect to have the provision apply.
Employee FICA Tip Credit
Under IRC section 45B, employers in the food and beverage industry may be eligible
for a credit for employment taxes paid on their employees' tip income. The credit amount
is the social security and medicare taxes paid on tip income over the federal minimum
wage rate. (The portion of tips used to meet the federal minimum wage rate does not
qualify.) Under the recently enacted Small Business and Work Opportunity Tax Act, the
credit is figured based on the federal minimum wage in effect on 01/01/2007. Although
the federal minimum wage increased to $5.85 later in 2007, the credit is figured based on
$5.15, the minimum wage as of 01/01/2007.
Delay of Return Processing
Due to the late enactment of the AMT patch, the IRS needs time to update and test its
systems to accommodate the AMT changes. As many as 13.5 million taxpayers using any
of the five forms related to the AMT legislation will have to wait until the IRS completes
the reprogramming. The five forms affected by the AMT patch are: Form 8863, Education
Credits, Form 5695, Residential Energy Credits; Form 1040A, Schedule 2, Child Care
Credit (for 1040A filers); Form 8396, Mortgage Interest credit; and Form 8859, D.C. First-
time Homebuyer Credit. IRS has targeted Feb 11 as the potential starting date for
processing returns with these forms. For the vast majority of taxpayers not affected by AMT
patch, the IRS expects to be able to begin processing returns in mid-January.