New Tax Laws for 2007 Tax Season

By Rafique S.M. Ahmed

One of the top legislative priorities for President George W. Bush last year was a complete overhaul of the federal income tax system. However, that was not to be. The Tax Increase Prevention and Reconciliation Act “TIPRA” which was passed by the Congress in 2005 was the only legislation signed into law by President Bush on May 17, 2006.
TIPRA introduced the following new tax law changes:
• For tax year 2006 only, the Alternative Minimum Tax exemption amounts will be higher. If not extended, the 2007 AMT exemption amounts will revert back to tax year 2000 levels.
• The act extends lower capital gains rates for regular and AMT taxes for two years.
• Under TIPRA, taxation of qualified dividends at the 15% maximum capital gains rate will be extended until December 31, 2010
• The upper age limit for the kiddie tax is raised from 14 to under age 18. Unearned income over S1700 will be taxed at the parent’s highest marginal rate.
• Section 179 limits have been increased for two years. The limit for tax year 2006 will be $108,000, with the phase-out starting at $430,000.
The following are other significant changes that may affect your 2006 tax returns:
• The maximum amount of income you can earn and still get Earned Income Credit is increased to $ 32,001 with one qualifying child or $36,348 with more than one qualifying child.
• The maximum amount of investment income you can earn and still be eligible for Earned Income Credit increased to $2,800.
• The list of qualified hybrid vehicles has been expanded. The Alternative Motor Vehicle Credit could be as much as $3,400 for the most fuel-efficient vehicles.
• Deduction for each personal exemption has been increased to $3,300 and is subject to phase out if your adjusted gross income is above a certain amount.
• The maximum Health Savings Account deduction increased to $2,700($5,450 for family coverage).
• The amount of Hope or Lifetime learning credit is gradually reduced if your modified adjusted gross income is between $45,000 and $55,000 ($90,000 and $110,000 if filing jointly).
• Some of your itemized deductions may be limited if your adjusted gross income is greater than $150,500 ($75,250 if married filing separately).
• The maximum amount of wages subject to social security @ 6.2% increased to $ 94,200. All wages are subject to Medicare tax @ 1.45%.
• A new option is available for taxpayers to split refunds between different bank accounts.
• The standard deduction for taxpayers who are unable to itemize deductions has increased.
• The standard mileage rates for following categories have changed:
44.5 cents a mile for all business miles driven
14.0 cents a mile for charitable services
18.0 cents a mile for moving and medical reasons respectively.
• All cash donations must be supported by a dated bank record or a dated receipt.
• No deduction is allowed for most contributions of clothing and household items unless the donated property is in good used condition or better.
• It is now possible to e-file a Return with an ITIN/SSN Mismatch.

(Rafique S.M. Ahmed is a professional tax accountant and has been providing accounting and tax services in California for more than thirty years. He is located at 1109 Via Verde, San Dimas, California 91773 and can be reached at 866-929-3309).


Editor: Akhtar M. Faruqui
2004 . All Rights Reserved.