AMT Exemption Goes Up

The dreaded Alternative Minimum Tax catches many middle-class taxpayers in its grasp. Fortunately, the exemption amount for AMT in 2007 is being increased, although there is an AMT patch in the works that could change things for 2007 tax filers. Current AMT limits are:

• Single - $33,750 (down from $42,500)
• Married filing jointly or surviving spouse - $45,000 (down from $62,550)
• Head of household - $33,750 (down from $42,500)
• Married filing separately - $22,500 (down from $31,275)

Charitable Contributions

In an attempt to clamp down on abusive charitable deductions, the IRS has been introducing new restrictions on charitable contributions.

All cash contributions made after August 17, 2006 to a qualified charity must now be supported by a dated receipt or a dated bank record. If you donate clothing or household items instead of cash, no deduction will be allowed for most contributions unless the donated property is in "good" condition or better.

These new restrictions require even greater documentation than ever before. When making a contribution to a non-profit group or charity, be sure to note specifically what items are being donated. If possible, you may also want to take photos of the items to document their condition, and ensure your deduction will be allowed by the IRS come tax time.

New for 2007, you cannot deduct a contribution to a donor advised fund after February 13, 2007, if the sponsoring organization is:

• a war veterans' organization;
• a fraternal society; or
• a nonprofit cemetary company.

Check with your tax professional to determine if you are eligible to deduct your contribution to a donor advised fund.

Standard Deduction Increased

For most people who don't itemize deductions, the basic standard deduction increased in 2007 to:

• $7,850 for head of household (up from $7,550 in 2006)
• $10,700 for Married taxpayers filing jointly and qualifying widows or widowers (up from $10,300 in 2006)
• $5,350 for married taxpayers filing separately (up from $5,150 in 2006)
• $5,350 for single people (up from $5,150 in 2006)

These deducations will not apply if someone can claim you as a dependant.

Split the Refund Between More Than One Account

Starting in 2007, the IRS is making it easier for taxpayers to split their refund between different accounts.

Filers of 2006 tax forms can automatically have their refund divied up between two or three different bank, credit union or brokerage accounts. The IRS has introduced Form 8888 to help taxpayers determine the appropriate amounts that should be sent to their different accounts.

Download Form 8888 for more details.

Exemptions Increase

The amount you can deduct for each exemption has increased $100 to $3,400 in 2007.

You lose all or part of the exemptions if your Adjusted Gross Income is above a certain amount. For tax year 2007, the phaseout begins at:

• $117,300 - Married persons filing separately (up from $112,875 in 2006).
• $156,400 - Single individuals (up from $150,500 in 2006).
• $195,500 - Heads of households (up from $188,150 in 2006).
• $234,600 - Married persons filing jointly, or qualifying widows and widowers (up from $225,750 in 2006).

Social Security and Medicare Taxes

The IRS has raised the amount of income subject to social security tax. In 2006, the amount of wages subject to the tax increased to $94,200 from $90,000. For Medicare tax, all covered 2006 wages are subject to the tax.