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Filing basics
The best way to ensure you are minimizing your tax
liability is to keep abreast of tax law. But consistent
monitoring of the changes to tax laws can be difficult
to keep up. In 2006, Congress passed numerous revisions
to the tax code in areas ranging from retirement savings
to charitable giving to the “kiddie tax.” At the same
time, Congress extended certain tax breaks through 2007,
including the higher education tuition deduction
and the option to deduct sales tax instead of state and
local taxes.
Filing status
Taxpayers can file as single, married filing jointly,
married filing separately, head of household, or
qualifying widower(er). If you are married and filing
jointly, you can take advantage of tax credits and
benefits not available to couples filing separately.
Unmarried taxpayers may file as single or, if they
qualify, as head of household.
Exemptions
You may claim a personal exemption for yourself, your
spouse and each of your dependents. Each exemption
reduces your taxable income by $3,400 in 2007. You begin
to lose part of the exemption benefit if your adjusted
gross income (AGI) is above the following:
2007 exemption phase-out limits
-
Single — $156,400 up to $278,900
- Married filing jointly/Qualifying widow(er) —
$234,600 up to $357,100
- Married filing separately — $117,300 up to
$178,550
- Head of household — $195,500 up to $318,000
For
2007, even with AGIs in excess of the phase-out maximum,
you still may take a $1,133 personal exemption. The good
news is that the personal exemption reduction is being
phased out and will be fully repealed by 2010.
Deductions
Even if you
don’t itemize, the following deductions may be available
to you:
- traditional IRA, SEP and qualified plan
contributions;
- one half of self-employment tax;
- alimony;
- job-related moving expenses;
- and self-employed health insurance premiums.
In addition to
above-the-line deductions, you can claim the standard
deduction or itemize.
The basic standard deduction for 2007 is:
-
$5,350 if single or married filing separately
-
$10,700 for married filing jointly or qualifying
widow(er)
-
$7,850 for head of household
Taxpayers 65 and older and/or blind get an additional
standard deduction of $1,050 for married filing jointly
or separately and $1,300 for single or head of
household. You should itemize if your total allowable
itemized deductions are more than the standard
deduction.
Keep in mind that the value of some of your itemized
deductions will be reduced if your AGI is above $156,400
($78,200 if married, filing separately). This reduction
is being phased out until it is eliminated in 2010, and
the reduction for 2007 will be lower than it was last
year.
» Next:
Homeowner tax breaks
This article was provided by the American
Institute of Certified Public Accountants (AICPA).
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