Marabeth Gildersleeve's Central Ct Blog

By law, the dollar amounts for a variety of tax provisions must be revised each year to keep pace with inflation. As a result, more than three dozen tax benefits, affecting virtually every taxpayer, are being adjusted for 2007

Earned Income Credit Amounts Increase

Earned income amount.

The maximum amount of income you can earn and still get the credit is higher for 2006 than it is for 2005. You may be able to take the credit for 2007 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 has also 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.

The maximum amount of investment income you can have in 2007 and still get the credit increases to $2,900.

Exemption Amount Increased

The amount you can deduct for each exemption has increased from $3,300 in 2006 to $3,400 in 2007.

You may lose part of the benefit of your exemptions if your adjusted gross income is above a certain amount. The amount at which the phase-out begins depends on your filing status. For 2007, the beginning and ending phase-out amounts are:

Tax-bracket thresholds
Will increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15 bracket from the 25-percent bracket will be $63,700, up from $61,300 in 2006.

Hope and Lifetime Learning Credits

Beginning in 2007, the maximum Hope Scholarship Credit is $1,650.

Beginning in 2007, the amount of your Hope or lifetime learning credit begins to phase out if your modified adjusted gross income is over $47,000 ($94,000 if married filing jointly).

Social Security and Medicare Taxes

For 2007, the employer and employee will continue to pay:(Same as in 2006)

1. 6.2% each for social security tax (old-age, survivors, and disability insurance), and
   1.45% each for Medicare tax (hospital insurance).

Wage limits. For social security tax, the maximum amount of 2007 wages subject to the tax is $97,500. For Medicare tax, all covered 2007 wages are subject to the tax.

Standard Deduction Amount Increased

The standard deduction for taxpayers who do not itemize deductions on Schedule A of 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 taxpayer.

The basic standard deduction amounts for 2007 are:

• Head of household $7,850
• Married taxpayers filing jointly and qualifying widow(er)s $10,700
• Married taxpayers filing separately $5,350
• Single $5,350

The standard deduction amount for an individual who may be claimed as a dependent by another taxpayer may not exceed the greater of $850 or the sum of $300 and the individual's earned income.

For 2007, the additional standard deduction amount for a person who is age 65 or older or blind is $1,050. If you are single and not a surviving spouse, the additional standard deduction amount is $1,300.

Standard Mileage Rates

Beginning January 1, 2007, the allowable deductions for the standard mileage rate are as follows:

• Business miles. The standard mileage rate for the cost of operating your car increases to 48.5 cents a mile for all business miles driven.
• Charitable services. The standard mileage rate allowed for use of your car when you use your car to provide charitable services to a charitable organization remains at 14 cents a mile.
• Medical reasons. The standard mileage rate allowed for use of your car for medical reasons increases to 20 cents a mile.
• Moving. The standard mileage rate for determining moving expenses increases to 20 cents a mile.