From IRS Publication 17. References to chapters found in this text can be
found in Publication 17 which can be downloaded from the IRS Website.
Extended tax provisions.
The following tax provisions have been extended through 2007.
• The deduction from adjusted gross income (AGI) for educator expenses.
• The deduction for qualified tuition and fees.
• The District of Columbia first-time homebuyer credit (for homes purchased
before January 1, 2008).
• The election to include nontaxable combat pay in earned income for figuring
the earned income credit.
• The itemized deduction for state and local general sales taxes.
Telephone excise tax credit. This credit was available on your 2006 tax return. If
you filed but did not claim this credit on your 2006 return, file Form 1040X, Amended
U.S. Individual Income Tax Return, using a simplified procedure explained in its
instructions to amend your 2006 return. If you were not required to file a 2006 return,
see the 2006 Form 1040EZ-T, Request for Refund of Federal Telephone Excise Tax.
Standard mileage rates. The standard mileage rate for the cost of operating your
car is 48.5 cents a mile for all business miles driven in 2007. See chapter 26. The
standard mileage rate allowed for use of your car for medical reasons is 20 cents a
mile for 2007. See chapter 21. The standard mileage rate allowed for use of your car
for determining moving expenses is 20 cents a mile for 2007. See Publication 521,
Moving Expenses.
Retirement savings plans. The following paragraphs highlight changes that affect
individual retirement arrangements (IRAs) and pension plans.
Traditional IRA income limits. You may be able to take an IRA deduction if you
were covered by a retirement plan and your modified adjusted gross income is less
than $62,000 ($103,000, if you are married filing jointly or a qualifying widow(er)).
See chapter 17.
Roth IRA income limit. You may be able to make a Roth IRA contribution if your
modified adjusted gross income is less than $114,000 ($166,000, if you are married
filing jointly or a qualifying widow(er)). Catch-up contributions in certain employer
bankruptcies. You may be able to deduct up to an additional $3,000 contributed to
your IRA if you were a participant in a 401(k) plan and your employer was in
bankruptcy in an earlier year. See Publication 590, Individual Retirement
Arrangements (IRAs).
Qualified health savings account (HSA) funding distribution. Generally, you
can make a one-time direct transfer from your IRA to your HSA and exclude the
amount transferred from your income. See Publication 969, Health Savings Accounts
and Other Tax-Favored Health Plans.
Limit on elective deferrals. Generally, the maximum amount of elective deferrals
under a salary reduction agreement that could be contributed to a qualified plan
increased to $15,500 ($20,500 if you were age 50 or older). However, for SIMPLE
plans, the amount is $10,500 ($13,000 if you were age 50 or older). Rollovers by
nonspouse beneficiaries. For distributions after 2006, a nonspouse designated
beneficiary may have a distribution from an eligible retirement plan of a deceased
employee directly transfered (trustee-to-trustee) to his or her own IRA set up to
receive the distribution. The transfer will be treated as an eligible rollover distribution
and the receiving IRA will be treated as an inherited IRA. See Publication 575,
Pension and Annuity Income, for more information. Retired public safety officer. For
distributions after 2006, an eligible retired public safety officer can elect to exclude
from income distributions of up to $3,000 made directly from a governmental
retirement plan to the providers of accident, health, or long-term care insurance. See
Publication 575 for more information. Retirement savings contributions credit. The
adjusted gross income limit for claiming this credit is increased to $26,000 ($39,000 if
head of household; $52,000 if married filing jointly). See chapter 37.
Mortgage insurance premiums. You may be able to treat mortgage insurance
premiums paid in connection with home acquisition debt as home mortgage interest.
See chapter 23.
Qualified joint venture. A qualified joint venture conducted by you and your
spouse may not be treated as a partnership if you file a joint return for the tax year.
See chapter 12.
New recordkeeping requirements for cash contributions. You cannot deduct a
cash contribution, regardless of the amount, unless you keep as a record of the
contribution a bank record (such as a canceled check, a bank copy of a canceled
check, or a bank statement containing the name of the charity, the date, and
amount) or a written communication from the charity. The written communication must
include the name of the charity, date of the contribution, and amount of the
contribution. See chapter 24.
Certain amounts increased. Some tax items that are indexed for inflation increased
for 2007.
Earned income credit (EIC). The maximum amount of income you can earn and still
get EIC increased. The amount depends on your filing status and number of children.
The maximum amount of investment income you can have and still be eligible for the
credit increased to $2,900. See chapter 36.
Standard deduction. The standard deduction for taxpayers who do not itemize
deductions on Schedule A (Form 1040) has increased. The amount depends on your
filing status. See chapter 20.
Exemption amount. You are allowed a $3,400 deduction for each exemption to which
you are entitled. However, your exemption amount could be phased out if you have
high income. See chapter 3.
Limit on itemized deductions. Some of your itemized deductions may be limited if your
adjusted gross income is more than $156,400 ($78,200 if you are married filing
separately). See chapter 29.
Tax benefits for adoption. The adoption credit and the maximum exclusion from
income of benefits under an employer's adoption assistance program are increased
to $11,390. See Adoption Credit in chapter 37.
Hope or lifetime learning credit income limits increased. The amount of income you
can have and still receive a Hope or lifetime learning credit has increased. See
chapter 35. Social security and Medicare taxes. The maximum wages subject to
social security tax (6.2%) increased to $97,500. All wages are subject to Medicare tax
(1.45%).
Expired tax provision. The tax provision allowing an additional exemption amount for
housing a person displaced by Hurricane Katrina has expired.
Frivolous tax submissions. The IRS has published a list of positions that are identified
as frivolous. The penalty for filing a frivolous tax return is $5,000. Also, the $5,000
penalty will apply to other specified frivolous submissions. See chapter 1.
Filing erroneous claim for refund or credit. You may have to pay a penalty if, after
May 25, 2007, you file an erroneous claim for refund or credit. See chapter 1.
Mailing your return. If you are filing a paper return, you may be mailing your return to
a different address because the IRS has changed the filing location for several
areas. If you received an envelope with your tax package, please use it. Otherwise,
see Where To File near the end of this publication for a list of IRS addresses.
found in Publication 17 which can be downloaded from the IRS Website.
Extended tax provisions.
The following tax provisions have been extended through 2007.
• The deduction from adjusted gross income (AGI) for educator expenses.
• The deduction for qualified tuition and fees.
• The District of Columbia first-time homebuyer credit (for homes purchased
before January 1, 2008).
• The election to include nontaxable combat pay in earned income for figuring
the earned income credit.
• The itemized deduction for state and local general sales taxes.
Telephone excise tax credit. This credit was available on your 2006 tax return. If
you filed but did not claim this credit on your 2006 return, file Form 1040X, Amended
U.S. Individual Income Tax Return, using a simplified procedure explained in its
instructions to amend your 2006 return. If you were not required to file a 2006 return,
see the 2006 Form 1040EZ-T, Request for Refund of Federal Telephone Excise Tax.
Standard mileage rates. The standard mileage rate for the cost of operating your
car is 48.5 cents a mile for all business miles driven in 2007. See chapter 26. The
standard mileage rate allowed for use of your car for medical reasons is 20 cents a
mile for 2007. See chapter 21. The standard mileage rate allowed for use of your car
for determining moving expenses is 20 cents a mile for 2007. See Publication 521,
Moving Expenses.
Retirement savings plans. The following paragraphs highlight changes that affect
individual retirement arrangements (IRAs) and pension plans.
Traditional IRA income limits. You may be able to take an IRA deduction if you
were covered by a retirement plan and your modified adjusted gross income is less
than $62,000 ($103,000, if you are married filing jointly or a qualifying widow(er)).
See chapter 17.
Roth IRA income limit. You may be able to make a Roth IRA contribution if your
modified adjusted gross income is less than $114,000 ($166,000, if you are married
filing jointly or a qualifying widow(er)). Catch-up contributions in certain employer
bankruptcies. You may be able to deduct up to an additional $3,000 contributed to
your IRA if you were a participant in a 401(k) plan and your employer was in
bankruptcy in an earlier year. See Publication 590, Individual Retirement
Arrangements (IRAs).
Qualified health savings account (HSA) funding distribution. Generally, you
can make a one-time direct transfer from your IRA to your HSA and exclude the
amount transferred from your income. See Publication 969, Health Savings Accounts
and Other Tax-Favored Health Plans.
Limit on elective deferrals. Generally, the maximum amount of elective deferrals
under a salary reduction agreement that could be contributed to a qualified plan
increased to $15,500 ($20,500 if you were age 50 or older). However, for SIMPLE
plans, the amount is $10,500 ($13,000 if you were age 50 or older). Rollovers by
nonspouse beneficiaries. For distributions after 2006, a nonspouse designated
beneficiary may have a distribution from an eligible retirement plan of a deceased
employee directly transfered (trustee-to-trustee) to his or her own IRA set up to
receive the distribution. The transfer will be treated as an eligible rollover distribution
and the receiving IRA will be treated as an inherited IRA. See Publication 575,
Pension and Annuity Income, for more information. Retired public safety officer. For
distributions after 2006, an eligible retired public safety officer can elect to exclude
from income distributions of up to $3,000 made directly from a governmental
retirement plan to the providers of accident, health, or long-term care insurance. See
Publication 575 for more information. Retirement savings contributions credit. The
adjusted gross income limit for claiming this credit is increased to $26,000 ($39,000 if
head of household; $52,000 if married filing jointly). See chapter 37.
Mortgage insurance premiums. You may be able to treat mortgage insurance
premiums paid in connection with home acquisition debt as home mortgage interest.
See chapter 23.
Qualified joint venture. A qualified joint venture conducted by you and your
spouse may not be treated as a partnership if you file a joint return for the tax year.
See chapter 12.
New recordkeeping requirements for cash contributions. You cannot deduct a
cash contribution, regardless of the amount, unless you keep as a record of the
contribution a bank record (such as a canceled check, a bank copy of a canceled
check, or a bank statement containing the name of the charity, the date, and
amount) or a written communication from the charity. The written communication must
include the name of the charity, date of the contribution, and amount of the
contribution. See chapter 24.
Certain amounts increased. Some tax items that are indexed for inflation increased
for 2007.
Earned income credit (EIC). The maximum amount of income you can earn and still
get EIC increased. The amount depends on your filing status and number of children.
The maximum amount of investment income you can have and still be eligible for the
credit increased to $2,900. See chapter 36.
Standard deduction. The standard deduction for taxpayers who do not itemize
deductions on Schedule A (Form 1040) has increased. The amount depends on your
filing status. See chapter 20.
Exemption amount. You are allowed a $3,400 deduction for each exemption to which
you are entitled. However, your exemption amount could be phased out if you have
high income. See chapter 3.
Limit on itemized deductions. Some of your itemized deductions may be limited if your
adjusted gross income is more than $156,400 ($78,200 if you are married filing
separately). See chapter 29.
Tax benefits for adoption. The adoption credit and the maximum exclusion from
income of benefits under an employer's adoption assistance program are increased
to $11,390. See Adoption Credit in chapter 37.
Hope or lifetime learning credit income limits increased. The amount of income you
can have and still receive a Hope or lifetime learning credit has increased. See
chapter 35. Social security and Medicare taxes. The maximum wages subject to
social security tax (6.2%) increased to $97,500. All wages are subject to Medicare tax
(1.45%).
Expired tax provision. The tax provision allowing an additional exemption amount for
housing a person displaced by Hurricane Katrina has expired.
Frivolous tax submissions. The IRS has published a list of positions that are identified
as frivolous. The penalty for filing a frivolous tax return is $5,000. Also, the $5,000
penalty will apply to other specified frivolous submissions. See chapter 1.
Filing erroneous claim for refund or credit. You may have to pay a penalty if, after
May 25, 2007, you file an erroneous claim for refund or credit. See chapter 1.
Mailing your return. If you are filing a paper return, you may be mailing your return to
a different address because the IRS has changed the filing location for several
areas. If you received an envelope with your tax package, please use it. Otherwise,
see Where To File near the end of this publication for a list of IRS addresses.
| Tax Law Changes for 2007 |
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