IRS opens e-filing tax season

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The e-filing tax season started yesterday in a year when taxpayers must cope with last-minute changes in the law by Congress.

If recent history is a cue, this year will see a record number of taxpayers filing their returns electronically via the Internet.

Yesterday was the first day that the Internal Revenue Services accepted such returns.

Tax preparers warn that people should be careful to watch for changes in the laws to avoid paying penalties later.

"Four million taxpayers could face delays in filing their returns and receiving their refunds because of changes" to the alternative minimum tax, said Dan Smith, spokesman for the tax preparation service H&R Block. "The change affects five popular tax credits for child and dependent care, education, mortgage interest, residential energy improvements and first-time home buyers in Washington, D.C. Taxpayers have options to minimize or avoid the delays if they know what they're doing."

The Internet-based tax preparation service TaxACT offered customers the following summary of changes on their returns for this year:

• Charitable contributions:New record-keeping requirements for cash contributions mean that you can't deduct a cash contribution, regardless of the amount, unless you keep a record of the contribution. This proof can come in the form of a canceled check or a bank statement or written communication from the charity if either of those contains the name of charity, the date and amount.

• Earned-income credit amount increased:The maximum amount of the credit has increased to $2,853 if you have one qualifying child, $4,716 if you have more than one qualifying child, or $428 if you do not have a qualifying child.

c Earned-income amount increased: The maximum amount of income that you can earn and still get the credit has increased for 2007.

• Expired tax benefits:The relief granted for Hurricanes Katrina, Rita, and Wilma as well as the qualified electric vehicle credit have expired and will not apply for 2007.

• Income limits increased for Hope and lifetime learning credits: For 2007, the amount of your Hope or lifetime learning credit is phased out if your modified adjusted gross income (MAGI) is between $47,000 and $57,000 ($94,000 and $114,000 if you file a joint return).

• Mortgage insurance premiums treated as home mortgage interest: Premiums that you pay for "qualified mortgage insurance" during 2007 in connection with home acquisition debt on your qualified home are deductible as home mortgage interest.

• Standard mileage rates: For 2007, the standard mileage rate for the cost of operating your car for business use is 48.5 cents per mile. Medical and moving-related mileage is 20 cents per mile, while charitable-related mileage is unchanged at 14 cents per mile.

• Credit for prior-year minimum tax: If you have any unused minimum tax credit to carry forward from 2004 or earlier years, your minimum tax credit allowable for 2007 is not less than the "AMT refundable credit amount." In addition, a portion of the credit may be refundable in 2007, so if the refundable part is more than your tax, you can get a refund of the difference.

• Income limits increased for student loan interest deduction: For 2007, the amount you can deduct for student loan interest is gradually phased out if your MAGI is between $55,000 and $70,000 ($110,000 and $140,000 if you file jointly.A free tax assistance service called the Free File Alliance is available through the Web sites www.irs.gov or freefilealliance.com.