Tax advantage for 2007 (ZT)

Take Advantage of 2007 Tax Provisions-- zt

By Earnest Young NewYear's Day came and saluted us with a few changes: higher contributionlimits for 401(k) plans, a decline in the top federal estate-tax rateand more deduction for many mortgage insurance buyers. Personalexemption, standard mileage rate, income brackets and dozens of othertax items have increased. While manytaxpayers will welcome the tax break, many will be hit with highertaxes. For example, according to the Tax Policy Center, about 11million workers will pay more Social Security taxes, and unless the lawis overhauled, more than 23 million people will be trapped by thealternative minimum tax (AMT) this year, compared to 3.5 million lastyear. Many will find tax planning to be difficult, especially sincethey are unsure of what Congress plans to do about the AMT. Let's take a closer look at the major changes and the effects they may have on you: Retirement Savings Themaximum amount you can contribute to a 401(k) plan increases from$15,000 (in 2006) to $15,500 (in 2007). If by the end of the year youare 50, you can put away an extra $5000, for a total of $20,500. Themaximum contribution limits for individual retirement accounts remainthe same, which is $4,000 if you are under 50. Anotherchange is the increase of the income limits when making contributionsto a Roth IRA. If you are filing jointly and your income is between$156,000 and $166,000, the amount you can contribute phases out. Therange has increased for most singles from $99,000 to $114,000. Underthe new law, a person who inherits money from an employer sponsoredretirement plan, like the 401(k), and from someone who wasn't theirspouse can put it directly into an IRA without paying tax. Encouragingly, this change will benefit many people who want to leave their possessions to children. Estate Tax Forthose inheriting large fortunes, they would be happy to know that thetop federal estate-tax rate declined to 45 percent for estates ofpeople who die in 2007 compared to 46 percent in 2006. Althoughtransfers to a spouse are usually free from tax, by law the basicfederal estate-tax exclusion will remain $2 million in 2007 and 2008.In 2009 this exclusion will increase to $3.5 million, but in 2010, thistax will disappear for one year. 2011 will see the re-appearance of thefederal estate tax bringing with it an exclusion of only $1 million. Raising the exclusion level and lowering the top tax rate are changes that Congress wants to see implemented before then. Mileage Rate Manydrivers who use their cars for business will benefit from an increasein the IRS standard optional mileage rate. They can choose betweendeducting their actual costs or using the IRS's standard mileage rate.The rate for calculating deductible costs of using your car forbusiness is 48.5 cents per mile (up from 44.5 cents in 2006). The rateis 20 cents per mile for medical and moving purposes (up from 18 centslast year). Mortgage Insurance Forthose who'll pay mortgage insurance this year, a new law that wouldbring in a new deduction was recently signed by President Bush.Unfortunately, once your adjusted gross income exceeds $100,000 (or$50,000 for married people filing separately) this new deduction beginsto phase out. This doesn't, however, apply to mortgage-insurancecontracts issued before this year. Analysts estimate that if yourincome is more than $109,000 (or $54,500 for married people filingseparately) you won't qualify for any deduction. Social Security Taxes Themaximum amount of earnings subject to the Social Security tax grew from$94,200 (2006) to $97,500 (2007). According to analysts, that simplymeans that the maximum additional tax that would be taken from anemployee earning above the 2006 wage base will be $204, 60. This year,those who are self employed may owe about $409.20 more. But the goodnews is that you can get back part of it through a federal deduction. Charitable Giving Ifyou donate cash to charity you will now need to have a ‘bank record' inorder to deduct the donation. Such proof can be a canceled check or areceipt from the charity. Income Brackets Eachyear because of inflation the IRS is required by law to adjust its taxtables. Your income and other details, have a lot to do with how thesechanges will affect you. It's estimated that a married couple who isfiling jointly with a total taxable income of $100,000 will pay about$268 less in federal income tax this year than they did in 2006 if theyhad the same income. The most to benefit by this law are thehigher-income taxpayers. For example, taxable income of more than$349,700 will be taxed this year at the top 35 percent federal rate. Alternative Minimum Tax Toprotect people from this tax, higher exemption levels were temporarilyended in December 2006. In addition, Congress has recently approved achange that will benefit some filers who applied the incentive stockoptions during the high-tech boom and were hit by the AMT as theirinvestments declined. IRA Transfers Ifyou are 70 ½ or older, you can take advantage of a tax break thatallows you to transfer as much as $100,000 from your IRA to a certifiedcharity without being taxed. This transfer will count toward yourrequired minimum distribution. Taxpayersare advised to seek help from a tax professional if they areexperiencing trouble understanding these new tax provisions.