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SIGNIFICANT CHANGES FOR TAX YEAR 2007

Age 24 in 2008! Next year the rule will hit children still in school through age 23.
Strategy – if you planned to have the youngster pay for college by selling appreciated
stock in 2008, try to sell it in 2007! For 2007, your age 18 or older child has very
low capital gain rates. In 2008, the child will be taxed at your rates – almost certainly
higher.
Alternative Minimum Tax: The alternative minimum tax (AMT) exemption
amounts decreased for 2007. The maximum exclusion amount for a child under age
18 whose unearned income is subject to tax at their parent's rate has changed. Some
nonrefundable credits are no longer allowed against AMT. A new tax liability limit
applies.
Charitable Contributions: Beginning with tax year 2007, all deductions for cash
contributions must be documented with a bank record or written communication from
the donee organization. The written communication must include the name of the
charity, date of the contribution, and the amount of the contribution.
Frivolous Tax Submissions: For returns filed after March 15, 2007, the penalty for
filing a frivolous tax return is increased to $5,000. The $5,000 penalty also applies to
other frivolous submissions made and issues raised after March 15, 2007. The
penalty is in addition to any other penalty provided by law.
Kiddie Tax – Age 18! Will your youngster have $1,700 or more of investment
income (that’s interest dividends, or capital gains) for 2007? If so, and if not age 18
or older by year-end, they can be taxed at your higher tax brackets. Do not allow
these youngsters to file a tax return until your own return is ready to file. We need to
compare tax brackets.
Mortgage Insurance Premium Deduction: Mortgage insurance premiums will be
allowed as deductible interest on Schedule A for tax year 2007. Premiums for
mortgage insurance policies started after December 31, 2006 and before January 1,
2008, for less than $1 million of acquisition indebtedness are deductible on Schedule
A as mortgage interest. This deduction begins to phase-out for taxpayers with
adjusted gross income (AGI) exceeding $100,000. This deduction is available for one
year only.
Section 179 Expensing: The section 179 expensing limitation for purchasing certain
qualified property increases to $125,000 (from $108,000). The phase-out threshold
increases to $450,000 (from $430,000).
Self-Created Musical Works: For tax years beginning after May 17, 2006,
taxpayers must elect to treat musical compositions and copyrights in musical works as
capital assets if sold or exchanged. Taxpayers must have personally created the work
or have acquired the property under circumstances (for example, by gift) entitling
them to the basis of the person who created the property or for whom it was
prepared or produced.
Telephone Excise Tax Refund: The federal telephone excise tax refund was only
available for tax year 2006. Individuals are not able to claim the credit for any tax
year beginning after December 31, 2006.
Whistleblower Fees: Taxpayers receiving awards from the IRS for information
provided after December 19, 2006, that substantially contributes to the detection of
violations of tax laws by the IRS, may be able to deduct attorney fees and court costs
paid by the taxpayer in connection with the award, up to the amount of the award
includible in gross income on account of the award. The deduction is taken as an
adjustment to income.

Santos Associates, FEDERALLY AUTHORIZED TAX PRACTITIONERS, can help you
with your accounting, tax and financial planning needs. Call today for an appointment &
consultation. We are not attorneys, we can refer competent council upon request.