There are a number of changes and other details taxpayers should be aware of before filing their 2007 returns.
The Earned Income Tax Credit (EITC) enables working people with children as well as those earning below a certain threshold to receive a tax credit. When the EITC exceeds the amount of taxes owed, it results in a refund for those who claim and qualify for the credit. However in order to be eligible you must file a tax return even if you did not earn enough money to be obligated to file a return.
You can apply for the credit, if your earned income and adjusted gross income is less than $37,783 ($39,783 married filing jointly) and you have two or more qualifying children; make less than $33,241 ($35,241 married filing jointly) and have one qualifying child; or if you earn $12,590 ($14,590 married filing jointly) and have no qualifying children.
The credit ranges from $428 if you have no children to $4,716 for those with two or more qualifying children.
A qualifying child meets these criteria: is a son, daughter, adopted child (or child lawfully placed for legal adoption), stepchild, eligible foster child, or a descendant of any of them (such as a grandchild); or the person is your brother, sister, half-brother, half-sister, stepbrother, stepsister, or descendant of any of them (such as a niece or nephew); and at the end of the year was under age 19, or under age 24 and a full-time student, or any age if the individual was permanently and totally disabled at any time during the year; and lived with you in the United States for more than half of the year.
Additionally, if you are a member of the United States armed forces and served in a combat zone, certain pay is excluded from your income, which may enable you to qualify for the EITC.
In order to qualify for the credit, there are basic criteria that must be met. These include:
(1) having earned income from employment or self-employment;
(2) having a valid social security number for yourself, your spouse if filing jointly, and any qualifying children;
(3) being a U.S. citizen or resident alien for all of 2007;
(4) having investment income of less than $2,900;
(5) having a filing status of married filing jointly (if you are married). Your spouse must also meet these guidelines; and
(6) being between the ages of 25 and 65 by the end of the year, if you do not have a qualifying child
To get more information about the EITC, visit the IRS website at www.irs.gov.
Other significant changes for 2007 include the following:
* Taxpayers who claim the tuition and fees education must fill out and attach the new Form 8917.
* Contribution limits to Individual Retirement Accounts (IRA) and other retirement plans have risen but the deduction is phased out for singles and heads of household who are covered by a workplace retirement plan and have income between $52,000 and $62,000. Also if your spouse has a workplace retirement plan and you do not, the phase-out begins when the combined income is between $156,000 and $166,000.
* This year for the first time income limits for the saver’s credit are adjusted for inflation. This credit supplements other tax benefits available to low- and moderate-income taxpayers who save for retirement. Begun in 2002 as a temporary credit, it is now a permanent part of the tax code. Use Form 8880 to claim the credit.
This credit applies to the first $2,000 workers voluntarily contribute to an Individual Retirement Account (IRA), 401(k), or similar workplace retirement program. You have until April 15, 2008 to set up a new IRA or add money to an existing account and still get credit for 2007. You may claim the credit, if you are a married couple filing jointly and have income up to $52,000 in 2007; married individual filing separately and singles with incomes up to $26,000 in 2007.
* Some borrowers who took out or refinanced a mortgage during 2007 may be able to deduct the mortgage insurance premiums paid. Proceeds of the mortgage secured by a first or a second home must have been used exclusively to buy, build, or improve these homes. Home-equity loans used for other purposes are not eligible. The deduction is phased out, when your adjusted gross income exceeds $100,000 ($50,000 if married filing separately.) For additional information, see Publication 936.
* Now if you want to deduct a charitable donation of money, taxpayers must have in their records a bank record or written communication from the recipient showing the name of the organization, date, and amount of the contribution. (See publication 526).
* The standard mileage rate for business use of a car, van, pick-up, or panel truck has increased to 48.5 cents per mile from 44 cents.
* Teachers, instructors, counselors, principals, and aides who work in public or private Kindergarten through grade 12 schools and work at least 900 hours a school year, can deduct up to $250 of unreimbursed expenses (otherwise deductible as trade or business) without itemizing on Form 1040 Schedule A. Just put the amount on line 23 of Form 1040 or line 16 of Form 1040A.
* The telephone tax refund has been eliminated for 2007, but if you did not request this one-time refund on your 2006 return, it’s not too late. Those who have already filed the 2006 return, can amend it with Form 1040x, and those who never filed can request the refund when filing their 2006 taxes. If you were not required to file a tax return, use Form 1040EZ-T to request the refund. Most telephone customers including most cell-phone users qualify for the refund. Anybody who has a phone, and hasn’t already requested that refund can do so.