Today’s guest post is by the Internal Revenue Service. Every year there are changes to the tax code. This year is better than most with only a few changes from 2006. I really encourage everyone of low or moderate income to look into the Saver’s Credit. If you qualify the IRS will give you a tax credit of up to 50% of what you contribute to a retirement plan. This includes employer sponsored retirement plans such as 401ks and individual plans such as IRA’s. The Saver’s Credit can create some major tax savings while helping you to save for retirement. A little known secret is you can contribute to an IRA as late as April 15, 2008 and still take the deduction on your 2007 tax return!
Taxpayers should be aware of important changes to the tax law before they complete their 2007 federal income tax forms. Here are some changes that may affect your return.
- AMT Exemption Increased for One Year. For tax-year 2007, Congress raised the alternative minimum tax exemption to $66,250 for a married couple filing a joint return. The exemption rises to $33,125 for a married person filing separately and to $44,350 for singles and heads of household. While the vast majority of taxpayers can file as usual, about 13.5 million taxpayers who file any of five tax forms affected by recent tax law changes related to the AMT will have to wait until Feb. 11, 2008, to file their returns. IRS.gov has more information on this important subject, including downloadable copies of affected forms and questions and answers.
- Extender Tax Breaks Reappear on IRS Forms. Several popular tax breaks, renewed too late to be included on 2006 forms, once again appear as separate items on various 2007 IRS forms. As a result, unlike last year, eligible taxpayers will no longer have to follow special instructions in order to claim the deduction for state and local sales taxes, the educator expense deduction and the tuition and fees deduction.
- Saver’s Credit. This year for the first time income limits for the saver’s credit are adjusted for inflation. The saver’s credit supplements other tax benefits available to low- and- moderate income taxpayers who save for retirement. Begun in 2002 as a temporary provision, the saver’s credit is now a permanent part of the tax code. Use Form 8880 to claim the credit.
- Mortgage Insurance Premiums May be Deductible. Some borrowers may be able to deduct mortgage insurance premiums paid on mortgages taken out or refinanced during 2007. The deduction for mortgage insurance premiums is phased out for taxpayers with adjusted gross incomes exceeding $100,000 ($50,000, if married filing separately). Claim this deduction on Schedule A, Line 13. Further details are in Publication 936.
- New Rules for Giving to Charity. To deduct any charitable donation of money, taxpayers must have a bank record or a written communication from the recipient showing the name of the organization and the date and amount of the contribution. Though taxpayers are already required to keep records to support their contribution deductions, this new provision is designed to provide greater certainty, both to taxpayers and the government, in determining what may be deducted as a charitable contribution. See Publication 526.
More information about the changes can be found on IRS.gov and in various IRS documents, including the Instructions for Form 1040.
Remember that for the genuine IRS Web site be sure to use .gov. Don’t be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.
Links:
- IRS FS 2008-1 Highlights of 2007 Tax Law Changes
- Form 1040 instructions (PDF 941K)
- Publication 526 Charitable Contributions