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Tips to help you stay organized throughout the year so you'll be ready for tax season.

2007 Tax Changes for Individuals

Alternative Minimum Tax (AMT)

The following changes to the AMT went into effect for 2007.

  • AMT exemption amount decreased. The AMT exemption amount has decreased to $33,750 ($45,000 if married filing jointly or qualifying widow(er); $22,500 if married filing separately).

  • Exemption amount for a child. The minimum exemption amount for a child under age 18 has increased to $6,300.

  • Hurricane Katrina additional exemption expired. The additional exemption for taxpayers who provide housing for a person displaced by Hurricane Katrina has expired. Therefore, the additional exemption amount (formerly line 6 of Form 8914) is no longer allowable for the AMT.

  • Certain credits no longer allowed against the AMT. The credit for child and dependent care expenses, credit for the elderly or the disabled, education credits, residential energy credits, mortgage interest credit, and the District of Columbia first-time homebuyer credit are no longer allowed against the AMT, and a new tax liability limit applies. This limit is your regular tax minus any tentative minimum tax (figured without any AMT foreign tax credit).

Standard Mileage Rate

  • Business-related mileage. For 2007, the standard mileage rate for the cost of operating your car for business use is 48.5 cents per mile.

  • Car expenses and use of the standard mileage rate are explained in chapter 4 of Publication 463, Travel, Entertainment, Gift, and Car Expenses.

  • Medical- and move-related mileage. For 2007, the standard mileage rate for the cost of operating your car for medical reasons or as part of a deductible move is 20 cents per mile. See Transportation under What Medical Expenses Are Includable in Publication 502 or Travel by car under Deductible Moving Expenses in Publication 521.

  • Charitable-related mileage. For 2007, the standard mileage rate for the cost of operating your car for charitable purposes remains 14 cents per mile.

Earned Income Credit (EIC)

The following paragraphs explain the changes to the credit for 2007.

  • Amount of credit increased. The maximum amount of the credit has increased. The most you can get is:

    • $2,853 if you have one qualifying child,

    • $4,716 if you have more than one qualifying child, or

    • $428 if you do not have a qualifying child.

  • Earned income amount increased. The maximum amount of income you can earn and still get the credit has increased for 2007. You may be able to take the credit if:

    • You have more than one qualifying child and you earn less than $37,783 ($39,783 if married filing jointly),

    • You have one qualifying child and you earn less than $33,241 ($35,241 if married filing jointly), or

    • You do not have a qualifying child and you earn less than $12,590 ($14,590 if married filing jointly).

The maximum amount of adjusted gross income (AGI) you can have and still get the credit also has increased. You may be able to take the credit if your AGI is less than the amount in the above list that applies to you.

  • Investment income amount increased. The maximum amount of investment income you can have and still get the credit has increased to $2,900 for 2007.

  • Advance payment of the credit. If you get advance payments of the credit from your employer with your pay, the total advance payments you get during 2007 can be as much as $1,712.

  • Nontaxable combat pay election extended. You can elect to have your nontaxable combat pay included in earned income when you figure your earned income credit for 2007. This election was previously due to expire at the end of 2006 but has been extended through 2007. For more information about the election, see Publication 596.

Standard Deduction Amount Increased

The standard deduction for people who do not itemize deductions on Schedule A (Form 1040) is, in most cases, higher for 2007 than it was for 2006. The amount depends on your filing status, whether you are 65 or older or blind, and whether an exemption can be claimed for you by another person. The 2007 Standard Deduction Tables are shown in Publication 505, Tax Withholding and Estimated Tax.

Exemption Amount Increased

The amount you can deduct for each exemption has increased to $3,400 in 2007.

You lose part of the benefit of your exemptions if your adjusted gross income is above a certain amount. The amount at which the phaseout begins depends on your filing status. For 2007, the phaseout begins at:

  • $117,300 for married persons filing separately,

  • $156,400 for single individuals,

  • $195,500 for heads of household, and

  • $234,600 for married persons filing jointly or qualifying widow(er)s.

See Publication 505 for more information on figuring the amount you can deduct.

Charitable Contributions

  • New recordkeeping requirements for cash contributions. You cannot deduct a cash contribution, regardless of the amount, unless you keep as a record of the contribution a bank record (such as a canceled check, a bank copy of a canceled check, or a bank statement containing the name of the charity, the date, and the amount) or a written communication from the charity. The written communication must include the name of the charity, date of the contribution, and amount of the contribution. For more information, see Publication 526.

  • Contributions to donor advised funds. You cannot deduct a contribution to a donor advised fund after February 13, 2007, if the sponsoring organization is a war veterans' organization, a fraternal society, or a nonprofit cemetery company. There are also other circumstances in which you cannot deduct your contribution to a donor advised fund. Generally, a donor advised fund is a fund or account in which a donor can, because of being a donor, advise the fund how to distribute or invest amounts held in the fund. For details, see Internal Revenue Code section 170(f)(18).

  • Filing fee for easements on buildings in historic districts. A new $500 filing fee must be paid for each qualified conservation contribution after February 12, 2007, that is an easement on a building in a registered historic district, if the claimed deduction is more than $10,000. See Form 8283-V, Payment Voucher for Filing Fee Under Section 170(f)(13).

Social Security and Medicare Taxes

The maximum amount of wages subject to the social security tax for 2007 is $97,500. There is no limit on the amount of wages subject to the Medicare tax.

Income Limits Increased for Student Loan Interest Deduction

For 2007, the amount of the student loan interest deduction is phased out if your modified adjusted gross income (MAGI) is between $55,000 and $70,000 (between $110,000 and $140,000 if married filing jointly). You cannot take the deduction if your MAGI is $70,000 or more ($140,000 or more if married filing jointly). For more information, see chapter 4 in Publication 970.

Income Limits Increased for Hope and Lifetime Learning Credits

For 2007, the amount of your Hope or lifetime learning credit is phased out (gradually reduced) if your modified adjusted gross income (MAGI) is between $47,000 and $57,000 ($94,000 and $114,000 if you file a joint return). You cannot claim an education credit if your MAGI is $57,000 or more ($114,000 or more if you file a joint return). For more information, see chapters 2 and 3 in Publication 970, Tax Benefits for Education.

Earned Income Amount for Additional Child Tax Credit

For 2007, the minimum earned income amount used to figure the additional child tax credit has increased to $11,750.

Mortgage Insurance Premium Deduction

Premiums that you pay or accrue for “qualified mortgage insurance” during 2007 in connection with home acquisition debt on your qualified home are deductible as an itemized deduction. The amount you can deduct is reduced by 10% (.10) for every $1,000 ($500 if your filing status is married filing separately) by which your adjusted gross income exceeds $100,000 ($50,000 if your filing status is married filing separately). For the definitions of home acquisition debt and qualified home, see Publication 936, Home Mortgage Interest Deduction.

Mortgage insurance premiums you paid or accrued on any mortgage insurance contract issued before January 1, 2007, are not deductible as an itemized deduction. Mortgage insurance premiums you paid or accrued after December 31, 2007, or that are properly allocable to any period after December 31, 2007, are not deductible as an itemized deduction.

  • Qualified mortgage insurance. Qualified mortgage insurance is mortgage insurance provided by the Veterans Administration, the Federal Housing Administration, or the Rural Housing Administration, and private mortgage insurance (as defined in section 2 of the Homeowners Protection Act of 1998 as in effect on December 20, 2006).

  • Special rules for prepaid mortgage insurance. If you paid premiums for qualified mortgage insurance that are properly allocable to periods after the close of the taxable year, such premiums are treated as paid in the period to which they are allocated. No deduction is allowed for the unamortized balance if the mortgage is satisfied before its term (except in the case of qualified mortgage insurance provided by the Department of Veterans Affairs or Rural Housing Administration).

  • Schedule A (Form 1040). You can deduct mortgage insurance premiums you paid or accrued during 2007 on line 13 of the 2007 Schedule A (Form 1040).

Limit on Itemized Deductions Increased

If your adjusted gross income is above a certain amount, you may lose part of your itemized deductions. In 2007, this amount is increased to $156,400 ($78,200 if married filing separately). See Publication 505 for more information on figuring the amount you can deduct.

Adoption Benefits Increased

For 2007, the maximum adoption credit has increased to $11,390. Also, the maximum exclusion from income for benefits under your employer's adoption assistance program has increased to $11,390. These amounts are phased out if your modified adjusted gross income (MAGI) is between $170,820 and $210,820. You cannot claim the credit or exclusion if your MAGI is $210,820 or more.

Income Limits Increased for Reduction of Education Savings Bond Exclusion

For 2007, the amount of your interest exclusion is phased out (gradually reduced) if your filing status is married filing jointly or qualifying widow(er) and your modified adjusted gross income (MAGI) is between $98,400 and $128,400. You cannot take the deduction if your MAGI is $128,400 or more.

For all other filing statuses, your interest exclusion is phased out if your MAGI is between $65,600 and $80,600. You cannot take a deduction if your MAGI is $80,600 or more. For more information, see chapter 9 in Publication 970, Tax Benefits for Education.

Credit for Prior Year Minimum Tax

If you have any unused minimum tax credit carryforward from 2003 or earlier years, your minimum tax credit allowable for 2007 is not less than the “AMT refundable credit amount.” In addition, a portion of the credit may be refundable in 2007. That means, if the refundable part of the credit is more than your tax, you can get a refund of the difference.

  • Credit refundable. The refundable amount of your credit is the amount by which your minimum tax credit for the year exceeds the amount your minimum tax credit would be without regard to the above rules.

  • Form 8801. To claim the refundable and nonrefundable parts of this credit, use the 2007 Form 8801, Credit for Prior Year Minimum Tax—Individuals, Estates, and Trusts.