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2007
Tax Law Changes
Many of the changes
to the tax code in 2007 can be traced to the sweeping
tax cuts approved by Congress back in 2002. However, some changes were directly impacted by Hurricane Katrina, as well as recent rises in energy costs over 2007.
Below is a summary
of the major 2007 tax law changes:
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AMT Exemption Goes Up
The
dreaded Alternative Minimum Tax catches many middle-class taxpayers in its grasp. Fortunately, the exemption amount for AMT in 2007 is being increased, although there is an AMT patch in the works that could change things for 2007 tax filers. Current AMT limits are:
- Single - $33,750 (down from $42,500)
- Married filing jointly or surviving spouse - $45,000 (down from $62,550)
- Head of household - $33,750 (down from $42,500)
- Married filing separately - $22,500 (down from $31,275)
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Mileage
Rates Increased
Energy costs have been on the rise, and the IRS has adjusted mileage rates to reflect that. The
IRS increased the mileage rate for 2007 to 48.5 cents per mile for
the business use of your car. This is an increase over the standard 44.5 cents per mile that applied for most of 2006.
If
you used your car to get medical care or to move, you can deduct
20 cents per mile. This rate also was increased over last year's 18 cents per mile.
Taxpayers who used their car to provide charitable services to a qualified charitable organization can still receive credit for their mileage. That rate is 14 cents per mile, and remained unchanged from last year. A rare exception last year was made for taxpayers providing Hurricane Katrina relief services. If the organization you were working for was providing relief related to Katrina, the standard mileage rate of 32 cents per mile would apply. However, that exception expired last year.
It's
important to keep proper documentation to support your deductions.
Ensure that you record begin and end odometer readings, the date
that you made the travel, and the specific reason for claiming the
mileage rate deduction.
On the horizon, mileage rates in continue increasing. In 2008, the standard business mileage rate deduction will increase to 50.5 cents
per mile, while the deduction for miles driving for medical or moving
will decrease to 19 cents per mile. |
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Charitable Contributions
In an attempt to clamp down on abusive charitable deductions, the IRS has been introducing new restrictions on charitable contributions.
All cash contributions made after August 17, 2006 to a qualified charity must now be supported by a dated receipt or a dated bank record. If you donate clothing or household items instead of cash, no deduction will be allowed for most contributions unless the donated property is in "good" condition or better.
These new restrictions require even greater documentation than ever before. When making a contribution to a non-profit group or charity, be sure to note specifically what items are being donated. If possible, you may also want to take photos of the items to document their condition, and ensure your deduction will be allowed by the IRS come tax time.
New for 2007, you cannot deduct a contribution to a donor advised fund after February 13, 2007, if the sponsoring organization is:
- a war veterans' organization;
- a fraternal society; or
- a nonprofit cemetary company.
Check with your tax professional to determine if you are eligible to deduct your contribution to a donor advised fund. |
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Standard
Deduction Increased
For
most people who don't itemize deductions, the basic standard deduction
increased in 2007 to:
- $7,850
for head of household (up from $7,550 in 2006)
- $10,700
for Married taxpayers filing jointly and qualifying widows or
widowers (up from $10,300 in 2006)
- $5,350
for married taxpayers filing separately (up from $5,150 in 2006)
- $5,350
for single people (up from $5,150 in 2006)
These
deducations will not apply if someone can claim you as a dependant. |
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Split the Refund Between More Than One Account
Starting in 2007, the IRS is making it easier for taxpayers to split their refund between different accounts.
Filers of 2006 tax forms can automatically have their refund divied up between two or three different bank, credit union or brokerage accounts. The IRS has introduced Form 8888 to help taxpayers determine the appropriate amounts that should be sent to their different accounts.
Download
Form 8888 for more
details.
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Exemptions
Increase
The
amount you can deduct for each exemption has increased $100 to $3,400
in 2007.
You
lose all or part of the exemptions if your Adjusted Gross Income
is above a certain amount. For tax year 2007, the phaseout begins
at:
- $117,300 - Married persons filing separately (up from $112,875 in 2006).
- $156,400 - Single individuals (up from $150,500 in 2006).
- $195,500 - Heads of households (up from $188,150 in 2006).
- $234,600 - Married persons filing jointly, or qualifying widows and widowers (up from $225,750 in 2006).
Download
Form 1040 for more details.
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Social Security and Medicare Taxes
The IRS has raised the amount of income subject to social security tax. In 2006, the amount of wages subject to the tax increased to $94,200 from $90,000. For Medicare tax, all covered 2006 wages are subject to the tax.
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Want to see all the
changes spelled out? Additional 2007 changes are outlined in IRS Publication
553.
All
information is believed accurate at time of transmission, and no tax advice
is implied. Always consult your tax professional if you have questions.
For
more legal information, please click
here.
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