Tuesday, November 6, 2007


The 2007 Form 1040 and corresponding instructions have been posted online at the IRS website.

There are only minimal changes to the 2007 Form 1040. On Page 1 Line 23 is now for Educator Expenses, replacing the Archer MSA, and Line 34 is now for the Tuition and Fees deduction, replacing repaid Jury Duty pay. On Page 2 there is some shuffling of the credits on Lines 47 through 53, and Line 71, used last year for the telephone excise tax refund, is now for the refundable prior year minimum tax credit.

The Schedule A, still in draft form, expands Line 5 under the “Taxes” category to include (a) for state and local income taxes and (b) for state and local sales taxes.

For the most part finished returns are sent to the same addresses as last year. The only exception is that returns are no longer sent to the Philadelphia Service Center. Pennsylvania taxpayers will send their 1040s to Kansas City and Kentucky filers will use the Austin Service Center.

The 2007 Form 1040 Instruction booklet clarified a question I had concerning a change in the law for retired “public safety officers” that became effective for 2007.

An eligible retired public safety officer (i.e. law enforcement officer, firefighter, chaplain, or rescue squad or ambulance crew member) can elect to exclude from taxable income up to $3,000.00 in withdrawals from his/her retirement check to pay for the premiums for accident and health insurance coverage for the retiree, spouse and dependents, similar in the way health insurance premiums deducted from an employee’s paycheck can be treated as “pre-tax” under a Section 125 cafeteria plan.

This election applies to amounts withheld from a 403(b) or 457(b) government retirement plan or annuity.

This is an excellent tax break for eligible retirees. In addition to reducing your taxable income, it also reduces your AGI - which can result in less of your Social Security benefits being taxed and more of your medical expenses being deducted!

I was not sure if this election had to be made to the appropriate state Division of Pensions, or if this exclusion would be reflected in the “taxable amount” reported on the Form 1099-R. The instructions indicate that “the amount shown in box 2a of Form 1099-R does not reflect the exclusion”. You make the election on your Form 1040 (or 1040A) by reducing the taxable amount of the pension that is reported on Line 16b (or Line 12b on the 1040A) by the amount of the excluded premiums, up to $3,000.00, and writing “PSO” in the margin next to Line 16b (or Line 12b) on the return.

Let’s say a retired firefighter receives a fully taxable pension of $12,000.00 in 2007. $275.00 is withheld from each monthly check for health insurance premiums. The taxpayer would report $12,000.00 on Line 16a of his 2007 Form 1040 and $9,000.00 on Line 16b. He would write “PSO” next to Line 16b. While a total of $3,300.00 was withheld from his retirement check for premiums, the exclusion is limited to $3,000.00. If the monthly premium deduction had been $225.00 instead the amount reported on Line 16b would be $9,300.00.

Of course the excluded premiums cannot also be deducted as a medical expense on Schedule A.

The 2007 New Jersey and New York state income tax forms and instructions have not yet been published. I will let you know of any changes when they become available online.

As of this writing, there is no progress yet to report on the “extender package” which contains the 2007 AMT fix. CCH reports that Acting IRS Commissioner Linda Stiff has again warned that time is rapidly running out for the Service to program its computer systems for the AMT patch in an address to the American Institute of Certified Public Accountants National Conference on Federal Taxes in Washington, D.C. yesterday.
The Tax Policy Center estimates that the AMT fix would keep 20 million taxpayers from falling victim to the dreaded AMT. That leaves about 4 million who will be victims. The 20 million the patch would fully protect would save on average close to $1,600 each, while the 4 million victims would see their tax bills fall by more than twice that amount, on average nearly $4,000.
Now I must get back to THE MAN FROM UNCLE movie marathon on Turner Movie Classics (TCM). BTW you can watch episodes of the classic television series, as well as episodes of THE GIRL FROM UNCLE, I SPY and some lesser known secret agent tv shows, for free at in2tv at AOL.Video.


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