Personal Income Tax Changes for 2007-08

Here is a quick summary of the tax changes for this year

 Mortgage Premium Deduction

  • For 4 years beginning in 2007 all PMI (Private Mortgage Insurance) premiums paid will be deductible, but phased out for income over $100,000. 

 Kiddie Tax Expansion

  •  Effective beginning tax year 2008, the Kiddie Tax rules have been expanded to include unearned income received by a child: Who is under age 19 or under 24 and a full-time student; and Whose earned income is less than half of his or her support.  

Expiring Tax Law Provisions  

Provision 

Outcome  

Increased AMT thresholds and exemptions  

Extended and increased for 2007 only

Nonrefundable personal credits allowed for AMT

Extended through tax year 2007 only

The option to deduct state and local sales taxes in lieu of the state income tax deduction 

Extended through tax year 2007

Educator's expense "teacher's" deduction 

Extended through tax year 2007 

Tuition and fees deduction 

Extended through tax year 2007

Savers Credit for lower income taxpayers 

Has been made permanent

30% credit for residential energy-efficient property (residential solar water heating, solar electric equipment and fuel cell property)

Extended through tax year 2008

Credit for contractors who build new, energy-efficient homes

Extended through tax year 2008

Deduction for energy-efficient commercial buildings

Extended through tax year 2008

Reduced rates for capital gains and qualified dividends

Extended through 2010

Increased section 179 deduction and phase-out threshold ($100,000/$400,000), adjusted for inflation

Extended through 2010

 

Cash Donations and Charitable Deductions

  • New record keeping You cannot deduct a cash contribution, regardless of the amount, unless you keep as a record of the contribution a bank record (such as a canceled check, a bank copy of a canceled check, or a bank statement containing the name of the charity, the date, and the amount) or a written communication from the charity. The written communication must include the name of the charity, date of the contribution, and amount of the contribution. 
  • Donated clothing and household items must be in good condition to be allowed as a deduction.

    Business Income Tax Changes for 2007-08

    Here is a quick summary of the tax changes for this year

Increased Section 179 Expense Deduction. The maximum amount of equipment placed in service in 2007 that businesses can expense increases to $125,000. The annual investment limit increases to $500,000 for 2007.   This will increase to $128,000 and $510,000, respectively.
 
Self-Employment  / Social Security Tax  Base Increased. The maximum amount of self-employment income or wages subject to Social Security taxes has increased $97,500 and increases to $102,000 in 2008.
 Business Standard Mileage Rate Increased. The 2007 standard business mileage rate is 48.5 cents per mile for miles driven for business.  This increases to 50.5 cents per mile in 2008.  As a result, it may be advantageous to take mileage instead of deducting actual expenses.  Remember that you can deduct the cost of parking and tolls in addition to the mileage allowance.
 
 Domestic Production Activities Deduction. Starting in 2007, this deduction increases to 6 percent of qualifying business net income from domestic production activities. This deduction applies to businesses engaged in construction, engineering, or architectural services; film production; or the lease, rental, or sale of equipment manufactured in the United States .
 
 Retirement Contributions.  The maximum deductable SEP, profit sharing and money purchase contribution increases to $45,000.

 INCREASING TAX AUDITS

Over the past year we have seen a dramatic increase in the number of tax audits.  New York ’s Tax Department has geared up to catch tax cheats, particularly in the areas of sales tax and labor audits.  In 2007 a new data resources group was created to match certain computer data.  Extensive cross matching is being performed with material from IRS and other sources.   We are concerned about these aggressive tactics and while you may think you are complying and paying the proper taxes, you also may not be adhering to their recordkeeping requirements.  New York State is also one of a number of states who is sharing the audit information directly with the IRS.  As a result, a minor error can cost you thousands of dollars.   For example, NYS is matching your sales tax returns to your income tax returns.  If you are underreporting your sales on your sales tax returns, you may be selected for a sales tax audit.  Independent contractors are being scrutinized by the department of labor and results of audit are being shared with the IRS.  Thus if any of your independent contractors you are found to be subject to unemployment insurance, the IRS may find them subject to social security and withholding taxes.