Happy New Year! Enclosed is your 2007 Tax Organizer. Please review the first few pages of questions. This Organizer will save you money and help insure that deductions and credits you are entitled to are not overlooked. Below is a brief summary of some of the tax changes and other tax issues for 2007. Please take a minute and review those items that pertain to your tax situation.

Telephone Federal Tax Credit in 2006 for most people was based on a flat rate table. If you actually calculated the credit based on you phone bills, you received interest on your refund check. This interest income is taxable in 2007.

Residential Energy Property Credit is available up to $500 for installing qualifying energy efficient property in your home such as circulating fans, natural or propane hot water heaters, and qualified central air conditioners. There is also a $2,000 credit for installation of solar hot water heaters.

Personal Exemptions for yourself, spouse, and dependents has increased to $3,400 for each exemption. The personal exemptions are phased out for single taxpayers with adjusted gross income over $156,400. ( $234,600 for joint filers). This phased out penalty is scheduled to be eliminated by 2010.

Standard Deduction is used by taxpayers who do not have enough itemized deductions. The 2007 Standard Deductions for single taxpayers under 65 years old is $5,350. ($10,700 for joint filers under the age of 65). For single taxpayers over age 65, the standard deduction is $6,650. ($12,800 for joint filers). The increase in the standard deduction for joint filers gives relief to those that were subject to the “marriage penalty”.

Itemized Deductions are phased out for taxpayers with adjusted gross income in excess of $156,400. This phase out penalty is scheduled to be eliminated by 2010.

NEW- Mortgage Insurance Premiums are deductible as an itemized deduction similar to mortgage interest expense. This does not include hurricane, homeowners or flood insurance and is phased out when adjusted gross income exceeds $100,000.

Donations must be supported by a dated bank record or dated receipt. You can no longer simply list your donations. Any single donation of over $250 must be supported by a letter of acknowledgment from the Charity.

Sales Tax Paid will be deductible as an itemized deduction. You can deduct the actual sales tax you paid, or use IRS tables based on income and family size. If you use the IRS sales tax tables, you may include additional tax paid on a car, boat, aircraft, or building materials.

Capital Gains tax rate on investments held over 12 months (long-term) is 15%. Capital gains on depreciable real estate is subject to a 25% tax on depreciation recaptured. Capital losses (net losses after all gains) are still limited to $3,000 per year with the balance of the net capital losses carried forward. For 2008, if someone is in the lowest tax bracket of 10%, the 5% capital gains tax rate is reduced to zero. (This is not a typo.)

Dividend Income is subject to a maximum tax of 15%. The annual 1099DIV will indicate if the dividend income qualifies for the 15% tax rate.

Wage Income subject to social security tax for 2007 is maxed out at $97,500. There is no ceiling on medicare tax.

Sales of your residence will be tax free up to a gain of $500,000 for married persons filing joint returns and $250,000 for single filers. You must have used the home as your primary residence for 2 years or more during the 5 year period ending on the date you sold your home. Losses on the sale of your home are not deductible.

Dependent Credit is $1,000 and will be available for each qualifying dependent child under age 17. The credit is phased out for married taxpayers with adjusted gross income in excess of $110,000 ($75,000 for single taxpayers).

Child Care Credit for children under age 13 or a disabled dependent who lived with you is available for qualified day care and other child care expenses which allow you to be gainfully employed. If married, both the taxpayer and spouse must be employed. Qualified expenses of $3,000 for one child ($6,000 for two or more children) will be allowed for computing the tax credit, which is typically 20% of the qualified expenses. If you pay an individual, you must issue a 1099 for payments made during the tax year.

Kiddie Tax is a tax on unearned income (dividends and interest) of a child under age 19 and students under age 24. Last year the age limit was 18. This tax causes the child’s income to be taxed at the parent’s rate. To avoid the Kiddie Tax, your child must have less than $1,700 of unearned income.

Retirement Contribution limits for the year 2007 are listed below.

Roth and Standard IRA accounts $ 4,000 ($ 5,000 if over 50 yrs old)
Simple IRA accounts $10,500 ($13,000 if over 50 yrs old)
401K Employer Contributions $15,500 ($20,500 if over 50 yrs old)
SEP Employer Contributions 25% of wages up to $45,000

Note that you must still have at least $4,000 of earned income, such as wages for Standard and Roth IRA contributions. Contributions for a Standard IRA can not be made after age 70 ½. Contributions to a Roth IRA can be made after 70 ½. For 2007, if you have a non-working spouse and enough earned income, you can now make a $4,000 ($5,000) contribution for the non-working spouse.

Distributions from retirement accounts to a non-spouse (your children) are now are able to be rolled over tax free. The transfer must be a direct trustee-to-trustee transfer to the beneficiary’s IRA.

IRA owners over age 70½ can transfer tax free up to $100,000 per year to a charitable organization. The taxpayer does not pick up income and does not get a charitable deduction for the IRA transfer, but the taxable estate is reduced by the $100,000.

Public Safety Officers may exclude up to $3,000 of eligible retirement distributions if used to pay health insurance or long term care.

Long Term Health Care Premiums are deductible as medical expenses subject to limitations based on your age. For 2007, the deduction is as follows: Under age 41 the deduction is $290, age 41-50 the deduction is $550, age 51-60 the deduction is $1,110, age 61-70 the deduction is $2,950 and over age 71 the deduction is $3,680.

Teachers and Educators can deduct on page one of their 1040 up to $250 in unreimbursed qualified out of pocket expenses for books and supplies.

College Tuition Credits are one of two types. The Hope Credit is available to freshman and sophomores and is limited to $1,650. The Lifetime Credit is increased to 20% of qualified expenses up to $10,000. These credits are phased out if you have more than $57,000 of income for a single filer and $114,000 for joint filers.

College Tuition Deduction expenses paid up to $4,000 will qualify for a deduction on page one of form 1040. This deduction can not be claimed in the same year you claim the Hope or Lifetime Credit and is subject to income phase out rules for single taxpayers with more than $65,000 of income, ($130,000 for joint returns). This deduction is available for you and your children in college or post high school vocational college.

Student Loan Interest expense up to $2,500 can be deducted on page one of the 1040, even if you do not itemize your deductions. This deduction is phased out for single taxpayers with income over $55,000. ($110,000 for joint returns).

Estate Tax Exemption is currently $2,000,000 for 2007 & 2008. If a person's total net assets are under this amount, the assets can pass on to family members free of Estate and Gift taxes. The estate tax exemption will increase to 3.5 million in 2009 and is repealed in 2010.

Gift Tax Annual Exclusion for gifts is $12,000. Gifts over this annual amount require a gift tax return to be filed. This limit is for non IRS approved charities, such as family.

Deductible use of Your Automobile:
Charitable use can generate a tax deduction of 14 cents per mile.
Medical use can generate a tax deduction of 20 cents per mile.
Moving expenses generate a tax deduction of 20 cents per mile. The move must be over 50 miles and for a new job.

Business Use of Your Automobile will generate a tax deduction equal to the actual cost of operating your vehicle including depreciation, or you can take a standard mileage rate of 48.5 cents per mile. You must be able to substantiate the total miles used during the year and the business portion.

Self- Employed Individuals can deduct 100% of the cost of eligible health insurance
premiums on page one of their tax return. This also applies to stockholders in S corporations.

Depreciation of personal property purchased during the year and used in a business qualifies for a current deduction under IRS Sect. 179 of up to $125,000. IRS Sect. 179 does not apply to automobiles or real estate. You may purchase up to $500,000 of qualified personal property in the current year before there is a reduction in the Sect. 179 expense limit.

Automobiles have a maximum depreciation of $3,060 in the year of purchase. Vehicles that have a unloaded gross vehicle weight of over 6000 lbs are not classified as automobile and qualify for a maximum depreciation of $25,000. Note that you can not write off more than the actual cost of a vehicle weighing over 6000 lbs.

Domestic Production Activity Deduction is an extra tax deduction. The deduction is 6% of taxable income, limited to 50% of gross wages. This is available to people in the construction industry, engineers and architects.

Minimum Wage in Florida as of 1/1/2008 is $6.79 per hour. You must pay time and a half for over 40 hours worked in any week.

Social Security Recipients between age 62 and full retirement can earn $12,960 and still receive full benefits. For earning in excess of $12,960, you will lose $1 of benefits for every $2 earned above $12,960. There is no earnings limit upon reaching full retirement age.

Extensions for 2007 will automatically extend your return for 6 months. The extension is only to file the return. Any tax due must be paid by 4/15/2008. IRS will assess a late penalty plus interest if the tax is not paid by 4/15/2008. If you are not sure if you will owe tax, we strongly recommend that you send in some money with the extension. When the IRS cashes your check, you have proof that the extension was received.

Identity Theft and scams posing as IRS agents have been prevalent. Never give you social security number, bank information, or credit card information to anyone claiming to be with the IRS. Hey, they are the IRS and they already have this information.

Please contact our office if you have questions on any of the issues discussed above.