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Get A Head Start On Tax Planning For 2008
It's still a month until most of us will file our 2007 tax
returns, but it's a good idea to keep in mind key tax changes
that will affect our 2008 returns. Here are some of the
highlights:
Wider tax brackets. In one of the rare cases in life
where inflation looks like a good thing, all tax-bracket
thresholds will be increasing. For a married couple filing a
joint return, for example, the taxable-income threshold
separating the 15-percent bracket from the 25-percent bracket is
$65,100, up from $63,700 in 2007.
Personal exemption. The personal exemption — which
you're allowed to claim for yourself and each dependent you have —
will go up $100 to $3,500 for 2008.
Standard deduction. Single filers will see this
deduction increase $100 from 2007 levels to $5,450. Married
couples filing jointly will see their standard deduction rise to
$10,950, $200 more, and the amount for heads of households who
don't itemize will be $8,000, up $150. For married taxpayers age
65 and older, they'll be allowed to add $1,050 to the regular
standard deduction — unchanged from 2007, and singles will get
an extra $1,350 compared to $1,300 in tax year 2007.
Phase-out of itemized deductions. Taxpayers will start
to see the value of their itemized deductions go down after
their taxable income exceeds $159,950 in 2008. That's $3,550
higher than in 2007.
Retirement plan contributions. The contribution amount
allowed for Roth IRAs begins to phase out for joint filers with
incomes exceeding $159,000 (up from $156,000 in 2007) and
$101,000 (up from $99,000) for singles and heads of household.
For contributions to a traditional IRA, the deduction phase-out
range for an individual covered by a retirement plan at work
begins at income of $85,000 for joint filers (up from $83,000)
and $53,000 for a single person or head of household (up from
$52,000). The annual contribution limit for most defined
contribution plans rises to $46,000, up from $45,000 in 2007.
Hope education credit. The maximum Hope credit,
available for the first two years of post-secondary education,
is $1,800, up from $1,650 in 2007.
Energy breaks. The federal government extended its
credit on 30 percent of qualified solar generators for
residential use.
The Kiddie Tax. The amount of investment income a
child under age 19 — or a full-time student under 24 — can
earn before excess earnings are taxed at his or her parents'
rate will go up $100 to $1,800 in 2008.
Tax-free parking and transit passes. Employers will be
allowed to give employees parking valued at $220 a month as a
tax-free fringe benefit in 2008, up $5 from 2007.
March 2008 — This column is produced by the Financial
Planning Association, the membership organization for the
financial planning community, and is provided by Don McCarty of
Financial Decision Partners, a local member of the FPA.
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