THE 2006 NJ-1040

Guess what arrived in my mailbox yesterday? The 2006 NJ-1040 booklet! As of this morning the 2006 NJ state Gross Income Tax forms are still not available online.

With the minor exceptions discussed in my earlier posting, there is no change to the new and improved layout of the return instituted last year, the tax rates and tables remain the same, and the mailing addresses for the return are the same as last year.

HAPPY NEW YEAR! Let us hope that 2007 is less taxing!

TAFTY!

MORE AUDITS IN STORE FOR SCHEDULE C

Here is a heads up from the About.com Business Law and Taxes “blog” by Mark Minassian:

“In a recent telephone conference, IRS commissioner Mark Everson said that they will be conducting more audits on individuals running unincorporated businesses (i.e. self-employed individuals).”

Mark goes on to provide some very wise advice for our Schedule C clients – “If you are self-employed and file Schedule C, always keep detailed and organized records, don’t deduct your personal (non-business) expenses on your Schedule C and make sure you report all of your income. You are already on the IRS radar; there’s no need to make their job easier.”

TAFN

STATE TAX CHANGES FOR 2006

NEW JERSEY:

According to the Fall/Winter 2006 issue of NEW JERSEY STATE TAX NEWS, there are only minor changes to the 2006 NJ-1040.

· The Earned Income Tax Credit Schedule no longer appears on the bottom of Page 3, but instead appears in the Instruction Booklet. Qualifying taxpayers who asked the IRS to calculate the federal EIC will fill in an oval at Line 50 of the 2006 NJ-1040.

· Homeowners must enter the total amount of real estate taxes paid and tenants 18% of the rent paid for the year on a new Line 36a whether or not they are claiming a Property Tax Deduction.

· When calculating the Use Tax Due on Out of State Purchases taxpayers must use the appropriate 6% or 7% rate in effect at the time of the purchase.

· Taxpayers who owned, occupied and paid property taxes on a home in New Jersey that was their principal residence on October 1, 2006 must fill in an oval at new Line 36b, indicating that they may be eligible for the NJ FAIR Rebate.

· A new credit has been added for taxpayers that employ qualified handicapped individuals in a “sheltered workshop”. The credit is calculated on Form GIT-317.

· A new “World Trade Center Scholarship Fund” is added to the list of charitable funds to which taxpayers can designate a portion of their refund.

The NJ TeleFile system that allowed certain taxpayer to file their NJ-1040 via telephone has been discontinued.

The NJ FAIR Rebate application process remains unchanged. Tenants apply via Form TR-1040 as part of the NJ-1040 filing (Page 4), while homeowners must continue to file separately after the tax season. For the life of me I still cannot understand why the "geniuses" in Trenton insist on having homeowners file their application later in the year, separate from the NJ-1040 filing. When the NJ Homestead Rebate was the only rebate offered both tenants and homeowners would apply for it on a Form HR-1040. Now that there is once again only one property tax rebate, why can't we go back to the HR-1040 filing process?

As I have said before, it would be much, much more convenient and practical for taxpayers and tax preparers alike to have all New Jersey taxpayers apply for the NJ FAIR Rebate with the filing of the NJ-1040. I know I would much rather take care of everything at the same time, instead of having to deal with homeowner client inquires about the rebate 3 to 6 months after the end of the tax filing season. I expect that it would be more convenient and practical for the NJ Division of Taxation as well to have everything done in one filing.

The separate filing for homeowners especially affects senior citizen homeowners, many of whom are confused by the process and, I suspect, as a result do not file for the rebate. This defeats one of the major purposes of the rebate - tax relief for senior citizens.

The 2006 NJ-1040 and Instruction Booklet is not yet available for review. As mentioned in my previous posting, the NJ Division of Taxation has indicated that they should be available after January 29th.

NEW YORK:

While the New York State full-year resident and part-year resident/non-resident income tax forms (IT-201 and IT-203) have remain unchanged from last year’s new and improved 4-page format, there have been several changes to NYS and NYC income tax for 2006.

· The maximum tax rate for NYS has been reduced back to $6.85% and the maximum rate for NYC has been reduced back to 3.648%. The 7.25% and 7.7% state brackets and 4.05% and 4.45% city brackets have been eliminated.

· The Standard Deduction for Married Filing Joint and Qualifying Widow(er) has been increased from $14,600.00 to $15,000.00 and from $6,500.00 to $7,500.00 for Married Filing Separate.

· The New York City School Tax Credit has been increased from $125.00 to $230.00 for Married Filing Joint and Qualifying Widow(er), and from $62.50 to $115.00 for Single, Head of Household and Married Filing Separate. This particular credit always puzzles me – I claim it for all applicable NYC resident taxpayers and sometimes the client gets it and sometimes he/she does not.

There have been some new credits added for New York, including some energy credits for residents, and changes made to existing ones – but these do not affect my clients.

TAFN

THIS AND THAT

* The maximum amount of wages subject to taxation under the New Jersey State Unemployment and Temporary Disability Insurance programs will increase from $25,800.00 to $26,600.00 for 2007. The maximum “SUI” withholding for NJ will be $113.05 and the maximum “SDI” withholding will be $133.00.

These maximum amounts apply to all employment during the year. NJ workers who have more than one employer can claim a refund of excess SUI and SDI withheld on their NJ-1040.

New Jersey workers eligible to receive unemployment or temporary disability benefits under regular criteria must have worked at least 20 base weeks during the preceding fiscal year in employment covered by unemployment insurance. The amount of earnings establishing a Base Week increases from $123.00 to $143.00 for 2007. If a claimant has not worked 20 base weeks, the alternative test amount of earnings required will climb from $6,200.00 to $7,200.00.

* The NJ Division of Taxation reports that the 2006 NJ-1040 form, instructions and related information will begin to be available on the Division’s website on or about December 29th. Some other related forms may not be available online until January.

* NJ tax preparers must now file all 2006 full-year resident Form NJ-1040s “electronically” if they filed 100 or more 2005 NJ-1040s, unless, of course, the client signs an Opt-Out form. Under P.L.2006, c.36, preparers can be charged a penalty of $50.00 for each return that was not filed electronically and for which there is no Opt-Out form.

TAFN

IRS GUIDANCE ON REPORTED EXTENDED DEDUCTIONS

The IRS has officially announced new guidance today to help tax filers claim the extended tax breaks on their 2006 tax returns.

The guidance verifies the updates previously entered on the updates page of the Quickfinder Handbooks website.

Part of this new guidance is the release of Publication 600, which contains the 2006 optional state sales tax tables along with a worksheet to calculate the deduction and general instructions.

REPORTING EXTENDED TAX PROVISIONS

The IRS website does not yet address how to report the tax breaks extended by the Tax Relief and Health Care Act of 2006 on the 2006 tax forms. However, the Quickfinder Handbooks website Update section provides guidance credited to the IRS on “2006 Form 1040 – REPORTING EXTENDED TAX PROVISIONS”.

THE TAX RELIEF AND HEALTH CARE ACT OF 2006

As you know, at literally the last minute Congress passed an "extenders" bill - The Tax Relief and Health Care Act of 2006. While George W has not yet signed it as promised, there is no reason to think he will not.

An article in Yahoo News indicates that because of the lateness of the passage there will he a delay in issuing the 2007 tax refunds this coming season.

"The IRS needs to reprogram its own computers -- a task that it expects to take about six weeks. Then that reprogramming needs to be tested. In a letter to Sen. Max Baucus of Montana, who will take the helm of the Senate Finance Committee next year, the IRS said all this reworking will create a logjam. The IRS will not be able to start processing tax returns on time next year, so early filers will experience delays getting their refunds.

The IRS, by the way, also expects general confusion, increased call volume to its telephone help lines, and more amended returns than usual."

So we can look forward to more "where's my refund" calls than usual this coming tax season!

CCH has prepared a CCH TAX BRIEFING analysis of the Act.

SmBiz.Com has a SPECIAL REPORT ON the Act.

For an analysis of the changes to Health Savings Accounts included in the Act you should check out this posting to the tax blog TAX PLAYA , written by Ryan Ellis.