Update Due to Tax Extender Legislation

Update Due to Tax Extender Legislation

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FEBRUARY 2007 - The December 2006 article “Twenty Questions About Paying for College: Demystifying Financial Aid and the Related Tax Benefits,” by Peter A. Karl III, Edward Petronio, and Kenneth Wallis, noted in the answer to question 8 that the Qualified Tuition Deduction/Higher Education Expense Deduction was no longer available. Although this statement was true as of the date of publication, tax legislation passed late last year—“Tax Relief and Health Care Act of 2006,” signed into law by President Bush on December 20, 2006—extended this deduction for the 2006 tax year. Tax professionals should be aware that this extender legislation also renewed a number of other popular tax incentives, including the deduction for state and local sales taxes, the deduction for out-of-pocket classroom expenses incurred by teachers, and the business deduction for research and development.

Because the law was passed so late in the year, the changes were not reflected in Forms 1040, 1040A, and Schedules A and B, which had already been printed for 2006. Because of the time needed for the IRS to update its systems for the tax law change, returns claiming the extended provisions will face a delay in processing until February 3. IRS Commissioner Mark Everson has encouraged taxpayers claiming the extender deductions to file electronically to minimize the possibility of errors (See news release IR-2007-003).

Tax professionals should be prepared for the possibility of taxpayer confusion over the extended provisions, as well as the likelihood that proper tax planning for the provisions was not taken due to the uncertain status of the tax law. Readers interested in further details should check the NYSSCPA’s news briefs at www.nysscpa.org, updated daily, as well as the article “Tax Relief and Health Care Act Brings Change for Individuals” by Mark Levin, published in the January 2007 Trusted Professional.

February 2007 Issue

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Features

Transparency for Whom

State Tax Credits For Company-Financed Research

Trust-Owned Life Insurance: Policy Review and Funding Techniques

The Role of the CPA in Corporate Compliance Committees

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