Tax Law Changes for Individuals
TAX YEAR 2007
2007 Form 1099-DIV
New regulations have been issued for regulated investment companies (RICs) reporting foreign taxes.
Adoption Benefits Increased
For 2007 and 2008, the maximum adoption credit and maximum exclusion from income under your employer’s adoption assistance program have increased.
Archer Medical Savings Accounts (MSAs) Limits Increased
For 2007 and 2008, the minimum annual deductible, maximum annual deductible, and the maximum out-of-pocket expenses limit have increased.
Capital Asset Treatment for Self-Created Musical Works
Certain musical compositions and copyrights in musical works may be treated as capital assets.
Charitable Contributions
There are new recordkeeping requirements for cash contributions, there are new limitations on contributions to donor-advised funds, and there is a new filing fee for easements on buildings in historic district.
Child and Dependent Care Credit
There are new rules in figuring earned income, calculating the credit when there is a temporary absence from work and when working part-time.
Child's Investment Income
For 2008, new rules apply for children between the ages of 18 and 23 with investment income.
Conflict-of-Interest Sales
If you are a judicial officer and you sell property at a gain after December 20, 2006, according to a certificate of divestiture issued by the Judicial Conference of the United States (or its designee) and purchase replacement property (permitted property) within 60 days after the sale, you may elect to defer part or all of the realized gain.
Credit for Prior Year Minimum Tax
New rules apply for calculating the prior year minimum tax credit.
Credit for Social Security and Medicare Taxes Paid
When figuring the credit, the amount of tips received during the month should be reduced by wages payable.
Earned Income Credit (EIC) Amounts Increased
The maximum amount of the credit, earned income phaseout amounts, investment income limits and advanced EIC have increased for tax years 2007 and 2008.
Earned Income for Additional Child Tax Credit
The minimum earned income amount has increased for 2007and 2008.
Education Savings Bond Exclusion
Modified adjusted gross income phaseout amounts have increased for 2007 and 2008.
Personal Exemptions
The deduction amount and phaseout income levels have increased for 2007. Also, the definition of qualifying relative is clarified.
Expired Tax Benefits
The tax benefits that have expired and will not apply for 2008.
Federal Telephone Excise Tax Credit
This credit was available only on your 2006 return. If you filed but did not request it on your 2006 return, file Form 1040X .
Foreign Earned Income Tax Worksheet Revised
Use the revised foreign earned income tax worksheet when filing Forms 2555 and 2555-EZ for 2007.
Form 1040 and Form 1040NR Instructional Changes
The Tax Technical Corrections Act of 2007 changed the filing instructions for Form 1040 and Form 1040NR.
Health Savings Accounts (HSAs)
The minimum/maximum annual deductible, out-of-pocket expenses,and maximum contribution amounts have increased for 2007.
Hope and Lifetime Learning Credits
The amount of the education credits and the income phaseout limits have increased for 2007 and 2008.
Itemized Deductions
The itemized deduction phaseout income limits have increased for 2007 and 2008.
Long-Term Care Premiums
For 2007 and 2008, the maximum amount of qualified long-term care premiums includible as medical expenses has increased.
Mortgage Insurance Premiums Treated as Home Mortgage Interest
You may be able to treat mortgage insurance premiums you paid during 2007 as home mortgage interest.
New Form 8917, Tuition and Fees Deduction
To claim the tuition and fees deduction, you must complete Form 8917, Tuition and Fees Deduction, and file it with Form 1040 or Form 1040A.
New Form 8919
If you were an employee treated as an independent contractor, use new Form 8919 to figure and report uncollected social security and Medicare taxes.
Penalty for Erroneous Claim for Refund or Credit
There is a new penalty if you file a claim for refund or credit of income tax in an excessive amount, and you did not have a reasonable basis for making the claim.
Residential Energy Credits
The nonbusiness energy property credit expires for property placed in service after December 31, 2007.
Sale of Main Home by Employees of the Intelligence Community
If you are an employee of the intelligence community, you may be able to exclude from income a gain from selling your main home.
Social Security and Medicare Taxes
The maximum amount of wages subject to the social security tax and Medicare tax has increased for 2007 and 2008.
Standard Deduction Amount Increases
The standard deduction for people who do not itemize deductions on Schedule A (Form 1040) is, in most cases, higher for 2007 and 2008.
Standard Mileage Rate
The standard mileage rate for business use of your vehicle, medical and move- related use and charitable use has increased for 2007 and 2008.
Student Loan Interest Deduction
For 2007 and 2008, the modified adjusted gross income phaseout amounts have increased.
Taxpayers Housing Individuals Displaced by Hurricane Katrina
The provision allowing you to claim an additional exemption amount for housing a person displaced by Hurricane Katrina expired in 2006 and is no longer available.
Vacant Land Used as Part of Main Home Destroyed by a Hurricane
You may qualify to exclude from income gain from the sale of vacant land you owned and used as part of your main home that was destroyed by Hurricanes Katrina, Rita, or Wilma.
Whistleblower Fees
You may be eligible to deduct attorney fees and court costs in relation to an award from the IRS.
For the most up to date information you can download IRS.GOV Publication 17
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Checking Your Work Record.
Your work record is crucial to your claim to Social Security benefits for two reasons. First, your eligibility for benefits depends on having earned enough work credits (quarters of coverage) to qualify. Second, the amount of your benefit is tied to the amount of money you have earned.
It's important to check your work record every few years as the Social Security Administration is not obligated to correct mistakes that occurred later than 3 years, 3 months, and 15 days after the year in which the mistake was made.
Social Security is now sending a Personal Earnings and Benefit Estimate Statement about three months before each taxpayer's birthday. Take the time to review it carefully. If you don't receive a statement, call toll free 1-800-772-1213 or stop by your nearest Social Security office and ask for Form 7004. Once you complete the form, you should receive your statement in two or three weeks.
If you find an error or an omission in your work record, take your statement and copies of your tax records or W-2 forms for the period in question to your local Social Security office and submit a "Request for Correction in Earnings Record."
Back Taxes?
If you are unable to pay back taxes and circumstances indicate that you won't be able to pay them in the foreseeable future, you might want to consider making a proposal to the IRS which would require you to pay less than the full amount of the bill. The IRS will often agree to compromise a civil tax liability if there is doubt as to its collectibility.
Compromise offers must be submitted on Form 656. "Offer in Compromise," along with detailed financial information on Form 433, "Statement of Financial Condition," if the offer is based on inability to pay.
Once the IRS receives your Offer in Compromise, the agency is required to stop all collection activity and investigate your request. The investigation normally takes about a minimum of six months, but often takes longer. At the very least, you are buying time. If your offer is rejected, you will receive back any amount tendered with your offer.
The IRS will take your future earning ability into account in determining if it will accept your proposal. In some cases, the IRS may ask you to make a "collateral agreement" promising to pay future amounts based on your earnings-in addition to the compromise amount.
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Individual Income Tax