Tax Analysts at Thomson Tax & Accounting Offer Tips for 2007 Tax Return Filing
January 28 2008 - 9:00AM
PR Newswire (US)
'Watch for New Changes; They're All in the Details' NEW YORK, Jan.
28 /PRNewswire/ -- Nothing is certain but death, taxes -- and
changes in the tax rules. "Even if you took advantage of every tax
break available to you in 2006, you may not be aware of some of the
new breaks available for 2007," says Harris Abrams, RIA Senior Tax
Analyst from Thomson Tax & Accounting. Keep these new-for-2007
tax changes in mind when you file your return: 1. Mortgage
Insurance Deduction. Some homeowners are entitled to a mortgage
interest deduction that is greater than the mortgage interest they
actually paid in 2007. A new deduction lets homeowners treat
mortgage insurance premiums paid in connection with debt taken to
acquire a principal residence and one other home as if they were
deductible mortgage interest. For the insurance premiums to be
deductible on your 2007 return, the mortgage insurance contract
must have been issued in 2007. Eligibility for the deduction is
subject to income limitations, with the deduction phasing out when
adjusted gross income exceeds $100,000 ($50,000 for married filing
separately); no deduction is available for those with adjusted
gross income above $109,000 ($54,500 if married filing separately).
2. New Substantiation Requirements for Charitable Contributions.
Cash contributions have become tougher to deduct. You may now
deduct monetary contributions only if you have a cancelled check,
credit card or other bank receipt, or written acknowledgement from
the charity. Cash contributions that are backed by only your
contribution log are not deductible. Also, contributions of
clothing and household items are deductible only if the items you
gave away were in good used condition or better. "Recent
advertising for tax software makes this look like a less formal
process than it actually is," comments Abrams. 3. Funding Your
Health Savings Account Just Got Easier. Beginning in 2007, (1) you
can fund your HSA by making a one-time direct transfer from your
IRA to your HSA; (2) qualifying health flexible spending account
(FSA) or health reimbursement arrangement (HRA) distributions may
be rolled over on a one-time-only basis via direct transfer to an
HSA; (3) the maximum deductible contribution is no longer limited
to the annual deductible under the high deductible plan; (4) for
computing the annual HSA contribution, if you are an eligible
individual in the last month of a tax year, you're deemed eligible
during every month of that year (if you remain eligible during a
testing period); and (5) you can take a maximum HSA contribution of
$2,850 for single coverage ($5,650 for family coverage). 4. What If
You Think You're an Employee -- And Your Employer Doesn't? If
you're an employee, but your employer treats you as an independent
contractor -- such as by reporting your income on a Form 1099
instead of a Form W-2 - you could be stuck paying self-employment
tax, which is twice the amount of social security tax you would pay
as an employee. You can straighten this out by filing new IRS Form
8919 (Uncollected Social Security and Medicare Tax on Wages), which
will let the IRS know that your employer is liable for its share of
employment taxes on your wages (rather than leaving you responsible
for the entire amount). But be sure you really are an employee
before filing Form 8919. If the IRS determines that you're not, you
may be billed for penalties and interest (in addition to the
employment tax you already owe). 5. Don't Believe Everything You
Read About the AMT. "Do not assume you are subject to the
alternative minimum tax just because the Form 1040 instructions say
you are," warns Abrams. IRS' instructions for Form 1040 state that
the alternative minimum tax (AMT) exemption amount -- the amount of
income over which you may be subject to the AMT -- is decreased to
$33,750 ($45,000 if married filing jointly or a qualified
widow(er); $22,500 if filing separately). Fortunately, that's not
the case. Congress provided taxpayers with some relief from these
rules, but only after the IRS forms had been printed. Under the new
law, for tax years beginning in 2007, the AMT exemption amounts are
increased to: (1) $66,250 in the case of married individuals filing
a joint return and surviving spouses; (2) $44,350 in the case of
unmarried individuals other than surviving spouses; and (3) $33,125
in the case of married individuals filing a separate return. In
addition, the rule that nonrefundable personal credits may offset
AMT -- which had been scheduled to expire at the end of 2006 -- has
been extended through 2007. 6. Kiddie Tax Change; New Rules Apply
to 2008, Not Your 2007 Filing. A change in the kiddie tax rules has
gotten much publicity, but don't jump the gun on this. The new
rules take effect in 2008, so they do not affect your 2007 return.
Starting in 2008, the kiddie tax rules, which tax certain
investment income of taxpayers' children at the rate that would
apply if the income was reported on their parents' return, applies
to 18-year-olds and full-time students up to age 23. However, the
rules only apply to 18-year-olds, and full-time students up to age
23, whose earned income doesn't exceed one-half the amount of their
support. For 2007, the rules apply only to children up to age 17.
7. Even Foreclosure May Have a Silver Lining. Congress has provided
some relief for taxpayers caught up in the subprime lending crisis:
You don't have to pay federal income tax on up to $2 million of
debt forgiven for a mortgage secured by your principal residence.
Previously, forgiven debt generally resulted in income for the
borrower equal to the amount of the debt forgiven. About The
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