NEW TAX LAW CHANGES FOR TAX YEARS 2006 & 2007

Use the section links below to locate specific information about the new tax laws changes. You can also download a PDF file to print the changes for your records, click here.

• Filing Season Opens On Time
  On December 27th the Internal Revenue Service announced that the upcoming tax season is expected to start on time for everyone except certain taxpayers potentially affected by the late enactment of the Alternative Minimum Tax “patch.” Following extensive work in recent weeks, the IRS expects to be able to begin processing returns on January 11, 2008. Approximately 13.5 million taxpayers who the Alternative Minimum Tax affect will have to wait to file returns around February 11.
• New Legislation for 2007
  During May 2007, the Federal Government enacted into law the Small Business and Work Opportunity Tax Act of 2007. The new legislation provides for an increase in the federal mimimum wage, a number of small business tax incentives to help pay for the increase, Gulf Opportunity Zone incentives, and favorable changes to the rules governing S corporations.
  Increase in the Federal Minimum Wage-Will gradually increase over the next three years from $5.15 to $7.25 per hour.
  Kiddie Tax Expansion- This change expands the Kiddie Tax to apply to children who are 18 years old or who are a full-time time student and under age 24 at which a child’s unearned income in excess of $1700 is taxed at the parent’s rate.
  Family Business Tax Simplication- Unincorporated business owned jointly by husband and wife will be able to file as a sole-proprietorship instead of a partnership.
  Increase and Extend the Expensing for Small Business- The amount that can be expense for eligible depreciable property has increased to $125,000 from $100,000. The expense deduction begins to phase out if more than $500,000 of eligible property is placed in service.
• Capital Gains & Dividends
  Unlike ordinary income, long-term capital gains and qualified dividends are taxed at no more than 15% through 2010.
• Mortgage Forgiveness Relief Act of 2007
  This Act provides relief to taxpayers who are facing hardship due to home foreclosures by allowing a limited exclusion for discharged home mortgage debt. The Act also includes several other provisions such as a liberalized exclusion rule for home sales by surviving spouses; an extension of the deduction for mortgage insurance premiums; and a limited exclusion for qualifying state or local rebates or payments to firefighters and other emergency responders.
• Misclassified Workers to File New Social Security Tax Form
  The Internal Revenue Service has developed a new form for employees who have been misclassified as independent contractors by their employers. This new form will help those taxpayers who have been misclassified, avoid the 15.3% self-employment taxes incurred by the self-employment venture. The employee must also meet one of several criteria indicating that they were an employee while performing these services.
  

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• Deductible Home Equity Line of credit
  If you have consumer debt that can be converted to home equity debt, you can turn nondeductible interest into a tax-deductible expense.
• Can’t Pay The Taxes?
  If you cannot pay your tax liability on time, you may request a payment agreement. Individuals who owe $25,000 or less in combined tax, penalties and interest can use the online payment application process to request a payment agreement. After the application is filed, immediate notification of approval could be received.
• $110 Million in Refunds Returned Undeliverable
  Our government is looking for over 100,000 taxpayers who are due refund checks worth over $100 million after checks were returned as undeliverable. You will need to call the IRS at 1-800-829-1954 or complete a change of address Form 8822 with the IRS if this applies to you .
• Child Tax Credit
  This credit is very useful in reducing your tax liability $1,000 for each child if you qualify.
• Receiving Correspondence from the IRS
  If you should ever receive any correspondence from the IRS retain a tax professional to interpret the correspondence for you.
• Your Retirement Plan as a Tax Planning Tool
  One of the better tax shelters taxpayers have at their disposal is the tax-favored retirement plan. Qualified contributions to your 401(k) Profit Sharing, Simple, IRA or other types of plans continues to be fully deductible from income and grow each year tax-free, if the funds are not withdrawn prematurely.
  

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• Selecting a Filing Status
  Your filing status is important because it determines your tax rate at which your income is taxed. The filing status must be based on the rule of law. One who is married can not file as Head of Household. This status is only available for those who are unmarried or could be considered to be unmarried.
• Volunteer Costs May Be Deductible
  When you incur costs volunteering for a qualified non-profit organization some or all of the costs may be deductible as a charitable donation. Make sure all expenses are documented with receipts or cancelled checks noting the date and purpose.
• Selling Your Home
  Taxpayers may sell their personal residence and once every two years exclude from taxable income up to $250,000 of gain ($500,000 for married taxpayers filing jointly). You must meet certain requirements to avoid the taxability of the gain.
• Mortgage Insurance Becomes Deductible
  For tax year 2007, you may be able to treat mortgage insurance premiums paid in connection with the purchase of your home as home mortgage interest, thus making it a deductible item on Form Schedule A. The insurance contract must have been issued after 2006 and premiums paid before 2008 for coverage in effect during 2007.
• Tax-Free Gifting for Education
  In most situations tax-free gifts are limited to $12,000 per person during 2007, however there is an exception if the gifts are for the purpose of providing for education. There are several requirements that must be met to be declared eligible.
  

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• Club Dues
  The purpose and activities of a club will determine whether or not you can deduct the dues. Dues are deductible for business organizations such as professional and trade associations, civic and public service organizations such as Rotary, Kiwanis, and the Lions Club.
• Auto Mileage Rates
  The standard mileage rates are:

The above rates are in cents per mile.
The rate for business mileage increased by 2 cents, the rate for medical and moving mileage went down by 1 cent and the rate for charitable mileage stayed the same.

• Energy Saving Tax Incentives
  Our government is trying to continue to encourage savings by giving tax credits for many types of energy saving home improvements including replacement of windows, doors, roofing and certain high efficiency heating and cooling equipment.

• TAX TIPS

• Donation of Appreciated Stock -
The donation of highly appreciated stock to your favorite charity instead of selling the stock and donating the cash will help you legally avoid a possible capital gain situation.

• Shift Income to Children -
Whenever the situation presents itself, shift income to your lower tax rate children. This can be done by gifting income producing investments to your children or hiring them in your business.

• Educational Credits for College -
Educational credits may reduce your taxes if you, your spouse, or your dependents attend college during the year. Also, you need to be aware of the Tuition Credit for students who attend college in South Carolina.

• Use IRA Funds For New Home Purchase -
The 10% penalty for early withdrawl of retirement funds from your IRA could be waived, if the money is used for qualified first-time homebuyer expenses. There are some limitations such as the $10,000 lifetime limit.

• Tax-Planning -
Taxpayers should always avail themselves of tax planning strategies throughout the year and not after the year has expired.
General Sales Tax - This tax can possibly help taxpayers increase their itemized deductions.

• Telephone Tax Rebate -
This refundable credit was available on your 2006 tax return. If you filed but did not claim ths refundable credit on your 2006 return, an amended return should be filed to reap an additional refund. This refundable credit is also available for those taxpayers who were not required to file a 2006 tax return.

• Certain Payments to Disabled Veterans Ruled Tax Free
  Payments under the Department of Veterans Affairs (VA) Compensated Work Therapy (CWT) program are no longer taxable and disabled verterans who paid tax on those benefits in the past three years can now claim refunds, by filing amended returns for tax years 2004, 2005 and 2006. Receipients of CWT payments will no longer receive a Form 1099 from the Department of Verterans Affairs.
• New Recordkeeping Requirements for Cash Contributions
  You cannot deduct cash contributions, regardless of the amount, unless you keep as a record of the contribution - a bank record (such as a cancelled check, a bank copy of a cancelled check, or a bank statement containing the name of the charity, the date and amount) or a written communication from the charity.
  

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