New Tax Laws for 2007
By Rafique S.M. Ahmed
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
• 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
• The maximum amount of investment income you can
earn and still be eligible for Earned Income Credit increased
• 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
• 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
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
(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).