Larger Personal Exemptions.
For 2007, each personal exemption you can claim is worth $3,400, up by $100 from 2006.
Higher Standard Deductions.
For 2007, the standard deduction for married filing jointly rises to $10,700, up by $400 from 2006. For single filers, the amount increases to $5,350 in 2007, up by $200 over 2006. And heads of household can claim $7,850 in 2007, a jump of $300 from 2006.
IRA Contributions
The maximum contribution increases to $5,000 (from $4,000). The catch-up contribution for taxpayers over age 50 remains $1,000. The maximum contribution amount will be indexed for inflation after tax year 2008.
Department of Transportation (DOT) 'Hours of Service' Limits
The DOT "hours of service" limits for meal expenses increases to 80% (from 75%) for 2008.
Capital Gain Tax Rates
The 5% rate drops to 0% for 2008 through 2010.
The five-year property rates (8% and 18%) have been repealed until 2009
Higher Income Limits for Deductible IRAs and for Roth IRAs.
If you are covered by a retirement plan at work, you can take a full IRA deduction if your modified adjusted gross income is less than $83,000 (married filing jointly) or $52,000 (single or head of household). A partial deduction is allowed until your adjusted gross income reaches $103,000 if you are married filing jointly or $72,000 if you are single or a head of household. Also, the opportunity to contribute to a Roth IRA is now phased out as your modified adjusted gross income rises between $156,000 and $166,000 if you are married filing jointly or $99,000 to $114,000 if you are single or a head of household.
Indexed Tax Brackets.
Thanks to higher inflation in the past year, the 15 percent, 25 percent, 28 percent, 33 percent, and 35 percent tax brackets all kick in at a bit more than 4 percent higher levels of income than in 2006.
Reduction in Itemized Deductions and Personal Exemptions for high-income taxpayers.
As we have noted previously, itemized deductions and personal exemptions are phased out (reduced) as your income rises. In 2007, the reduction of itemized deductions occurs once your adjusted gross income exceeds $156,400, regardless of your filing status. The reduction in personal exemptions begins at $234,600 of adjusted gross income for married filing jointly, $195,500 for heads of households and $156,400 for singles.
Increased Section 179 Expense Deduction.
The maximum amount of equipment placed in service in 2007 that businesses can expense increases to $112,000, a $4,000 increase from 2006. The annual investment limit increases to $450,000 for 2007, up from $430,000 the year before. Thus, you won't lose the benefit of expensing until you place more than $450,000 of assets in service in 2007.
Tax-free Parking for Employees.
Starting in 2007, employees are not taxed on up to $215 a month of employer-paid parking, up $10 per month from 2006. The cap on tax-free transit passes their employers can give rises to $110 a month, up $5 a month from 2006.
Increased Contribution Limit for 401(k) Plans.
The maximum employee contribution rises to $15,500 from $15,000 for these and similar workplace retirement plans including 403(b)s and the federal Thrift Savings Plan. The limit for workers age 50 and older rises to $20,500, also a $500 increase from 2006.
Domestic Production Activities Deduction.
In 2007, this deduction increases to 6 percent of qualifying business net income. This deduction applies to businesses engaged in construction, engineering or architectural services, film production, or the lease, rental, or sale of equipment you manufactured.