If you’re getting a head start on preparing your 2007 tax return this year, or just catching up to meet the April 15 deadline, there are some important personal tax law changes to be aware of. An increase in the standard deduction and more options for income earned abroad are just a few new additions to the 2007 tax year. Here are some of the most important personal tax law changes, and how they will affect you:
Tax Law Changes for 2007: Increased 401(k) Contribution Level
If you’re diligently building your 401(k) account, you can continue your quest for optimal retirement with higher contribution levels. 2007 allows you to contribute $15,500 completely tax free.
What the tax law changes mean for you: Paying less taxes on your 401(k) contributions adds more value, dollar for dollar to your savings plan. Over time, this can accumulate interest for later years.
Tax Law Changes for 2007: Higher Levels of Income Earned Abroad
If you were working overseas in 2007, you don’t have to pay taxes on the first $85,700 you made.
What the tax law changes mean for you: Capitalizing on your overseas income, instead of paying heavy taxes if you had made that money in the United States
Tax Law Changes for 2007: Higher Personal Exemptions
If you’re filing as a single taxpayer in 2007, you can claim a personal exemption of $3,400 instead of $3,300 that you claimed for 2006.
What the tax law changes mean for you: That extra $100 that is now tax free is that much more valuable.
Tax Law Changes for 2007: Larger Standard Deductions
The standard deduction for a single taxpayer was just $5,150 in 2006, but now stands at $5,350; married couples filing jointly can enjoy a standard deduction of $10,700.
What the tax law changes mean for you: Even less taxes to pay on your net income; every little bit counts, especially if you don’t qualify for itemized deductions or the itemized deductions are very low.
Tax Law Changes for 2007: Almost 100% IRA Deduction
If your adjusted gross income is less than $83,000, you can take deduct all of your employer-paid IRA contributions for the entire year.
What the tax law changes mean for you: More deductions on your tax return means your taxable income will be much lower; if your employer is paying a large amount towards your IRA, you’ll enjoy an extra benefit this year.
Tax Law Changes for 2007: Higher Earned Income Credits for Children in the Family
Maximum credits have increased to $2,853 for one qualifying child, $4,716 for one or more qualifying children, and $428 for no qualifying children.
What the tax law changes mean for you: Credits allow you to deduct additional amounts from your gross income so you do not pay tax on it. Wage levels are taken into consideration to qualify, but in most cases, it’s a valuable tax break that usually leads to a tax refund.
A few additional tax law changes for 2007 include decreases in the Alternative Minimum Tax exemption, more adoption credit options, and even credits for the minimum tax in prior years. In order to prepare your tax return correctly, be sure to review the 2007 Tax Rate Schedules form the IRS that determines which tax bracket you fall into. After that, you’ll need to review all the changes to find out which deductions and exemptions apply to your situation.