Income Tax Changes 2007

It's time once again for our annual review of tax changes for the coming year.  For those of you preparing for the tax year 2007, we've got a lot of helpful information summarizing all of the income tax changes in 2007

Federal Income Taxes in 2007

As was the case in the past several years, April 15th falls on a weekend - a Sunday in the example.  That means the official federal income tax filing deadline will be April 16, 2007.  But there is more good news on the horizon for 2007.

Changes to Social Security and Medicare

In 2007 there really aren't many changes to Social Security and Medicare other than the increase to the Social Security maximum.  In 2007 the Medicare tax stays at 1.45% of all taxpayer income and Social Security remains at 6.2%.

In 2007, the wage limit or maximum has been raised $3,300 to $97,500.  That's an increase of nearly 3.5% - which is right around inflation or the cost of living increase you might get from your employer.  The maximum Social Security benefit was increased to $2,116 per month in 2007 and the Cost of Living Adjustment was 3.3%

Standard Deduction Amounts

If you don't itemize your tax deductions on Schedule A, we've got more good news from the IRS.  All the standard deductions for those taxpayers are higher for 2007.  The exact amount depends on your filing status, whether you're 65 or older, blind, or if an exemption can be claimed for you by another taxpayer.  With that in mind, the standard deduction amounts for 2007 include:

• Single - $5,350
• Married filing separately - $5,350
• Head of household - $7,850
• Married taxpayers filing jointly / qualifying widow(er)s  - $10,700
• Married taxpayers filing separately - $5,350

Exemptions Increase in 2007

The amount you can deduct for each exemption you can claim on your federal income taxes has increased again in 2007.  The 2006 value of $3,300 has increased to $3,400 in 2007.  This deduction is also subject to a phase-out limit which depends on your tax filing status.  In 2007, the tax exemption phase-out schedule begins at the following levels:

• For married persons filing separately - $117,300
• For single individuals - $156,400
• For heads of households - $195,500
• For married persons filing jointly or qualifying widow(er)s - $234,600

Mileage Deduction Rates

In 2007, the IRS is telling us once again that it's more expensive to drive your car and that standard mileage deduction rates are increasing.  This increase is driven by the cost to maintain cars, new car prices as well as the cost of gasoline at the pump.

The following table outlines the mileage deduction rates for the tax year 2007:

Mileage Deduction Rates 2007

We've got more detail on this topic in our article entitled - Mileage Reimbursement Rate.

Increase to Earned Income Credit

In 2007, the maximum amount of income you can earn and still qualify for the earned income credit has once again increased.  That means you will be eligible to claim this tax credit in 2007 if you can meet the following requirements:

• You do not have a qualifying child and earn less than $12,590 or $14,590 and are married and filing jointly.
• You have one qualifying child and you earn less than $33,241 or $35,241 if filing jointly.
• If you have two or more qualifying children and earn less than $37,783 or $39,783 if married filing jointly.

In addition, the maximum investment income you can have in 2007 and still take this credit has been increased to $2,900.

Changes to Lifetime Learning and Hope Credits

Finally, in 2007 tax law changes also apply to the Hope Credit as well as the Lifetime Learning credit.  In 2007, the phase out rule for these two tax credits now begin if your adjusted gross income is over $47,000 or $94,00 if you're married and filing a joint return.

The maximum Hope Credit was also increased from $1,500 in 2006 to $1,650 in 2007.

About the Author - Income Tax Changes 2007

Copyright © 2006 - 2007 Money-Zine.com

Tax Resources on the Web