Old tax laws, new amounts
Every year, some new tax laws make it onto the books. There are also some tax standbys that filers are accustomed to seeing. These provisions remain the same, but are adjusted annually to reflect inflation. Watch "Tax changes for 2008"
|These five tax perennials get new numbers every year based on the rate of inflation. While the 2007 adjustments aren't that great in some cases, when it comes to taxes, every dollar counts.
1. Standard deduction amounts
Most taxpayers claim the standard deduction instead of itemizing. On 2007 returns, the standard amount for single filers is $5,350. That amount, which is $200 more than the 2006 tax year, is also what a married taxpayer who opts to file separately from a spouse can claim. Head of household taxpayers get a $7,850 standard deduction this year, up $300 from 2006's amount.
Married couples who file a joint return get a $400 bump, giving them a $10,700 standard deduction. This is double the single-filer amount, thanks to legislation from several years ago to lessen the marriage tax penalty. The change was made to appease husbands and wives who, for years, had argued that filing one joint return cheated them of tax breaks they would have received if they had submitted two separate 1040s. Qualifying widows and widowers also can use this amount.
2. Personal exemptions
You, your spouse and each person you can claim as a dependent are valuable exemptions that can cut your tax bill. You're all worth $3,400 apiece this filing season. That's $100 more than the previous tax year.
However, if you make a lot of money, your exemption amount could be reduced or even eliminated. For 2007 returns, this income trigger starts at $117,300. If you hit that mark, you have to complete a work sheet to determine your exemption amount.
3. Social Security wage base
Every worker knows that a portion of each paycheck goes to pay for Social Security benefits. But if you earn a lot, some of your wages escape this payroll withholding. The first $97,500 you earned last year was subject to this 6.2 percent levy. Your employer matched that amount.
If you earned more, the Social Security tax wasn't collected on the overage amount. You did, however, continue to pay the 1.45 percent Medicare portion, again matched by your company on every dollar you made last year.
The 2007 Social Security wage base was $3,300 higher than the year before. For 2008 planning purposes, it goes up to $102,000.
4. Earned income tax credit, or EITC
Workers on the other end of the income scale also get an added inflationary break. The earned income tax credit helps cut the tax bill of filers who make below a certain wage limit.
The potential credit on 2007 returns ranges from $428 to $4,716.
A childless person who earned less than $12,590 in 2007 can apply for the credit. A worker who, supporting one child, made less than $33,241 is eligible, as is a worker earning less than $37,783 and taking care of two or more youngsters.
The EITC earning limits are $2,000 higher in each category for married taxpayers filing jointly.
5. Car costs
The only good thing about high gasoline prices is that they lead to larger tax deductions for individuals who use their vehicles for work, when moving or in connection with medical or charity related trips. Each fall, the IRS determines how much drivers can write off for these various travels in the coming 12 months.
If you used your car for business in 2007, you can deduct those miles at the rate of 48.5 cents each; that's 4 cents more than was allowed in 2006. For 2008, keep track of your work-related driving and get a deduction of 50.5 cents per mile.
Travel for medical purposes last year is deductible on your 2007 return at 20 cents per mile, 2 cents more than the previous tax year. That same rate applies to allowable move-related mileage. For this type of travel in 2008, the rate is 19 cents per mile.
The mileage deduction for travel in connection with charitable services is not adjusted for inflation. It is set by law at 14 cents a mile.
In addition to these inflation adjustments to existing tax laws, there are some new ones on the books that could affect your 2007 return. See "10 tax laws you need to know."
|-- Updated: Jan. 30, 2008