2007 Tax Law Changes

There are several significant changes to the tax code for 2007. This article is a summary of the most popular (or not so popular) changes. There are typical changes that make adjustments for inflation, but there are also changes that affect when you can file your taxes or qualify you for benefits you may have not been qualified for in the past.

Standard Deduction Increase

The standard deductions for individuals have increased to the following:

-Single standard deduction - $5,350
-Married, filing separately standard deduction - $5,350
-Married, filing jointly standard deduction - $10,700
-Head of household standard deduction - $7,850

Earned Income Credit (EIC) Benefits Increase

The amount of earned income to qualify for EIC as well as the benefit itself has increased. Remember that the EIC is a credit, not a deduction. It is directly applied to the amount of tax you owe, or overpaid (refund). Keep in mind that if you are married, you must be filing "married and jointly." If you are filing "married and separately," you will not qualify for the benefit. The amount of earned income you must be below is as follows:

- Two or more children - $37,783 (single) or $39,783 (married/jointly)
- One child - $33,241 (single) or $35,241 (married/jointly)
- No children - $12,590 (single) or $14,590 (married/jointly)

The maximum earned income credit that will be applied to your refund (or amount you owe) will be as follows:

- Two or more children - $4,716
- One child - $2,853
- No children - $428

In addition to these changes, the maximum investment income has increased to $2,900 for all taxpayers. So if you have more than $2,900 in all of your investments combined, you will not qualify.

Alternative Minimum Tax (AMT) Changes

-The alternative minimum tax amount has increased to $44,350 (single), $66,250 (married filing jointly), and $33125 (married filing separate)
-The exemption amount for a child under AMT has increased to $6,300.
-The exemptions for Hurricane Katrina have expired.

There are also five tax forms related to the AMT that if filed, affect when you can file your taxes. If you are filing any of the following forms electronically, you cannot file your taxes until after February 11, 2008.

-Form 8863 - Education Credits
-Form 5695 - Residential Energy Credits
-Form 1040A Schedule 2 - Child and Dependent Care Expenses
-Form 8396 - Mortgage Interest Credit
-Form 8859 - District of Columbia First-Time Home Buyers Credit

Lifetime Learning and Hope Credits

The most significant change to the Hope Credit is the benefit has increased from $1,500 to $1,650 and up to $2,000 for the Lifetime Learning Credit. You cannot claim both credits in the same tax year. Additionally, the Modified Adjusted Gross Income (MAGI) limits have also increased. You will not qualify for these educational credits if your MAGI is $57,000 (single) or $114,000 (jointly). You cannot file married and separately and qualify for the educational benefits.

If you attended higher education in 2007, you may be eligible for these credits. If your income is between $47,000 and $57,000 these benefits are being phased out. Go to www.irs.gov for additional information and qualifications.

Charity Contribution Deductions

The record keeping of deductions for charity contributions has become more detailed. Although most of us receive and keep receipts for our contributions,

you must now keep a bank statement or record or a written record from the recipient that includes the date, amount and name of the recipient. For more information on charity contribution deductions refer to IRS Publication 526.

Mileage Deduction Rates Increase

The mileage deduction for use of your vehicle in business related activity has increased. This deduction is set to attempt to cover not only your fuel costs, but the wear-and-tear on your vehicle as well as other maintenance.

-Business miles - 48.5 cents per mile
-Charitable miles - 14 cents per mile
-Medical and moving mileage - 20 cents per mile

Mortgage Insurance Deduction

Some taxpayers will be able to deduct their mortgage insurance premiums in 2007 through 2010. The deduction can only be taken for the current tax year. If you pre-pay your insurance through multiple years, you can only deduct the premiums for the current year. If your income is greater than $100,000 (married/jointly) or $50,000 (single) the deduction is being phased out. For more information on the mortgage insurance deduction, refer to IRS Publication 936.

Telephone Tax Refund

The telephone tax refund that was available in 2006 is not available in 2007. However, if you did not claim the telephone tax refund in 2006, you are still eligible for the benefit this year. To claim this benefit, file Form 1040X. If you do not file a regular tax return, use Form 1040EZ-T to claim the benefit.

Be Informed!

The amount of tax code and laws are enormous and until it is simplified it is difficult to stay current on the changes that occur each year. Being informed of your benefits and responsibilities can be daunting. I have included the more significant changes in this article. Refer to www.irs.gov for a complete listing of all the changes for the 2007 tax year. Use caution when using commercial software when filing your 2007 taxes. Many of the changes happened toward the end of 2006, after software was already written. This is the primary reason for the IRS delay in accepting many returns until February 11, 2008.