It is that time of year again…and I am not talking about Christmas shopping or the recent snow showers. No, it is actually time once again for last minute tax planning for 2007 and calculating your 4th quarter estimated tax payments. Well, this year Congress is adding some complication to your planning and calculation…as well as frustrating the IRS and tax software programmers.
If you haven’t been following the latest developments, then you will definitely want to tune in this week as the Senate returns to take up the House Bill H.R. 3996 that would once again “patch” the AMT (alternative minimum tax) problem by raising the AMT exemption for a year so that millions of households are not affected. An AMT patch is usually not a problem for Congress to pass – in fact, that has been the solution for the past couple years. However, this time we have a Democratic lead Congress that reestablished the pay-as-you-go system (PAYGO), and basically the hold up on the patch is a fight over a matter of principle that could end costing many of us some big tax dollars. I don’t really want to get into the politics of this, but basically the Democrats want to have tax offsets to pay for the $50 billion in lost revenue and the Republicans argue that no tax offset is needed because AMT was never intended to tax to the extent it currently is and therefore it really isn’t “lost” revenue. Regardless of where you stand on this, time is running out and the big problem is how it affects your year-end tax planning.
For those of that are required to pay estimated tax payments, this could really affect you. If your income is fairly consistent and you are paying in 100% of the prior year tax liability (110% if your AGI was over $150k), then you don’t have as much to worry about in your year-end planning – although you should still pay attention to the AMT patch developments as it could mean more tax liability due on April 15th, 2008. However, those of you that are not paying in 100% of the prior year liability to safe harbor yourself against penalties will want to be very careful in your year-end tax planning. If a deadlock on the AMT issue prevents passage of a patch bill, then your tax liability for 2007 could higher than you had projected.
I don’t want to make too much out of this as it may become a moot point by the end of the week, but just make sure you keep informed on the issue and be cautious with your 4th quarter estimated tax payment if you are not paying safe harbor amounts. Also, if you have a CPA prepare estimated tax calculations in the next month, please make sure you understand what the numbers are based on. Most CPAs will probably base estimates on the AMT patch being passed, but you might have them calculate the effect on tax without the patch just to make sure you safe for 2007.