Tax Laws: Changes Affect Tax Credits and Relief

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Yearly changes in the IRS tax codes directly affect your tax relief options. Changes in tax laws can include higher tax credits that may make it easier to clear up your IRS debt and changes in required recordkeeping that may make it harder to write off your deductions.

Tax Laws Change in 2007

Every year the Internal Revenue Code undergoes changes, sometimes wholesale restructuring but more often just minor alterations to income, deduction, or credit limits. Here are some of the changes for 2007 returns that could affect most taxpayers.

Charitable Contributions: New Recordkeeping Requirements

To receive a deduction for charitable contributions, you must have a record of any cash contributions you made to a charity in 2007. The record could be a canceled check, copy of a canceled check, a bank statement that shows the date, amount and name of the charity, or a letter from the charity showing the amount and date.

Tax Credit: Earned Income Amounts Increase

The earned income credit amount for one qualifying child has increased to a maximum of $2,853. If you have more than one qualifying child, the maximum earned income credit is $4,716, and is $428 if you have no qualifying children.

The maximum income you can earn and still be eligible for the credit has been increased to $39,783 if you are married and filing a joint tax return, or $37,783 if you are single or filing separately and have more than one child. If you have only one child, the maximum earned income amount is $35,241 for joint filers and $33,241 if you are single or filing separately. If you have no children, the maximum amount is $14,590 for joint returns and $12,590 if you are single or filing separately.

You are allowed to receive the earned income credit with unearned (investment) income of $2,900, an increase over the 2006 limitations.

Other Tax Credits: Expired or Increased in 2007

Tax Relief Expired: Tax relief granted to victims of hurricanes Katrina, Rita and Wilma has expired. Qualified electric vehicle credits cannot be taken for any vehicle placed in service after 2006.

Increase in Taxable Social Security Wages: The maximum amount of taxable Social Security wages has increased to $97,500 for 2007.

Mileage Deduction Increases: Deductible mileage has increased to 48.5 cents per mile for business related miles. The deductible mileage allowed for qualifying medical or moving related trips has increased to 20 cents per mile.

Standard Deduction Increases: There are also changes that apply to individuals and married filers of forms 1040, 1040A, and 1040EZ. These are taxpayers whose itemized deductions don't exceed applicable standard deductions. Standard deductions are as follows:

1. Single or married filing separately -- $5,350
2. Married filing jointly -- $10,700
3. Head of household, single with one or more dependents -- $7,850
4. Over the age of 65 or blind -- add $1,300 to the applicable standard deduction and an additional $1,050 if you file a joint return and your spouse is also blind or over 65.

New Tax Credits: Mortgage Insurance Premiums

Qualified mortgage insurance premiums (paid to listed government agencies or approved private insurers) are to be deductible as home mortgage interest on Schedule A. The deduction is subject to reduction once adjusted gross income exceeds $50,000 for single or separate filers and $100,000 for joint filers.

Taxpayers with prepaid mortgage insurance premiums are allowed to deduct the amount of payments allocated to coverage for the applicable tax year only.

Tax Laws Change

These are some of the major changes for the tax year 2007, but not all of them. Taxpayers with questions about specific elements of the Internal Revenue Code can consult the IRS by phone, check with the IRS web site, get copies of IRS publications, use a tax preparation program, or consult a tax advisor.