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When the Congress enacted the Alternative Minimum Tax in 1969 without indexing for inflation, it did not realize that the inflation factor would grow completely out of proportions in the years to come killing the real purpose of imposing AMT only on wealthy families. Initially, the AMT was imposed on 155 families who earned more than $200,000 in 1969. The same salary of $200,000 after indexed for inflation would equal approximately $1.2 million in today’s dollars. Since the value of the dollar has diminished drastically due to inflation over the years, families making $200,000 now are not considered as wealthy families and, therefore, are unnecessarily made subject to AMT. More than four million taxpayers were subject to AMT in the 2006 tax year compared to only 155 in 1969.
Congress passed the Tax Increase & Prevention Act of 2007 just before the year ended putting a one-year freeze on growth of AMT to shield many more middle and upper-middle income taxpayers from first exposure to AMT. Without this Congressional AMT Patch, more than 20 million families would have been hit with an additional tax of $2,000 on average.
Congress passes legislation every year to keep AMT from expanding. Needless to say, Congress barely made it this year missing the IRS deadline. The Internal Revenue Service had requested the Congress to pass the AMT fix latest by the middle of November in order for the IRS to have the changes reflected in the final 2007 tax forms. More than 3 million early tax filers out of an anticipated 13.5 million AMT related taxpayers expecting refunds will now have to wait until February to get their tax refunds mainly because of Congress’s late fix to the AMT. The five forms affected by the delay are:
       Form 8863, Education Credits
       Form 5695, Residential Energy Credits
       Form 1040A’s Schedule 2, Child and Dependent Care Expenses
       Form 8396, Mortgage Interest Credit and
       Form 8859, District of Columbia First-Time Homebuyer Credit
The following are the significant changes that may affect your 2007 tax returns:

You can withdraw up to $10,000 from IRA funds without paying an early withdrawal penalty as a first-time homebuyer to use the money for qualified first-time homebuyer expenses.
Unincorporated business owned jointly by husband and wife will be able to file as a sole-proprietorship instead of a partnership.
Mortgage Insurance Premiums can be deducted as Home Mortgage Interest. The amount you can deduct is reduced by 10% for every $1,000 ($500 if you file as married filing separately) by which your adjusted gross income exceeds $100,000 ($50,000 for married filing separately).
For 2007, modified adjusted gross income (MAGI) limits increased for Hope and Lifetime Learning Credits by $4,000 for a joint return and $2,000 for all other returns.
The maximum amount of wages subject to the social security tax for 2007 increased to $97,500. There is no limit on the amount of wages subject to the Medicare tax @1.45%.
The maximum Section 179 expense deduction for business equipment purchases has increased to $125,000. The expense deduction is phased out dollar-for-dollar for equipment purchases exceeding $500,000 within the year.
The standard mileage rates for following categories have changed:

         48.5 cents a mile for the cost of operating your car for business use
         20.0 cents a mile for moving and medical reasons respectively
         14.0 cents a mile for charitable services

The maximum amount of income you can earn and still get Earned Income Credit has increased to $33,241 with one qualifying child; $37,783 with more than one qualifying child or less than $12,590 with no qualifying child.
The maximum amount of investment income you can have and still get Earned Income Credit has increased to $2,900.
The minimum earned income amount used to figure the additional child tax credit has increased to $11,750.
Deduction for each personal exemption has increased to $3,400 and is subject to phase out for high-income taxpayers.
Tax-free gifting for education limited to $12,000 per student for 2007 covering tuition costs must be paid directly to the school. Books, room and boarding are not deductible.
You may be able to take an IRA deduction even if you were covered by a retirement plan, your 2007 modified adjusted gross income is less than $103,000 and you are married filing jointly or a qualifying widow(er).
January 11, '08 is the first day to commence electronic filing by the IRS.

(Rafique S.M. Ahmed is a professional Tax Accountant and has been providing accounting and tax services in California for more than thirty years. He is also an "Authorized IRS Electronic Filing Provider ", is located at 1109 Via Verde, San Dimas, California 91773 and can be reached at 909-599-1412 or 1414).

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