With the end of 2007 drawing near, it is almost time to start thinking ahead to January 1st and what you are doing with your money. Coming in 2008, there are some tax law changes that you might want to be aware of when contemplating your investment accounts, savings accounts, retirement plans and tax preparation for that year. Here is a short list of things that will happen to the tax code in 2008:
Reduction in Capital Gains Tax Rates. Prior to 2008, long-term capital gains from the sale of assets held longer than one year were taxed at a maximum rate of five percent to the extent the seller was in the 10 or 15 percent tax brackets. In 2008, the five percent maximum rate drops to zero percent through 2010. The 15 percent maximum tax rate on other long-term capital gains stays the same.
Increased IRA Contribution Limits. In 2008, the maximum IRA (traditional or Roth) contribution increases from $4,000 to $5,000. Filers who reach age 50 before the end of 2008 can contribute another $1,000.
Reduction in Dividend Tax Rates. The special five percent maximum rate on dividends of taxpayers in the 10 and 15 percent tax brackets drops to zero percent through 2010.
Earned income credit changes for Joint Filers. Starting point and ending point are increased by $3,000.
Marriage Penalty Relief. Married individuals are often faced with a larger tax bill than they would have paid if they had filed as single taxpayers. The tax legislation of 2001 and 2003 made changes to reduce this inequity in 2003 and 2004. These changes were reversed to a certain extent for tax years 2005 – 2007, but are scheduled to come back in 2008 and 2009.
Self-Employment Tax Contribution Base Increases. The maximum amount of self-employment income subject to Social Security taxes will increase, probably to about $102,000 in 2008, up from $97,500 in 2007.
Business Standard Mileage Rate Rises. The standard business mileage rate will increase for miles driven in 2008 for business, up from 48.5 cents per mile in 2007.
Personal exemption – which you claim for yourself and each dependent – will rise to $3,500 for 2008, up $100 from the 2007 level. For folks in the 25% bracket, that saves 25 bucks for each exemption claimed. For a husband and wife with two kids, the savings will add up to $100.
Extra standard deduction for taxpayers 65 and older. Married taxpayers age 65 and older will be allowed to add $1,050 to the regular standard deduction (the same as on 2007 returns) and singles will get an extra $1,350 (up from $1,300 in’07)
Kiddie tax trigger. The amount of investment income a child under age 19 — or a full-time student under 24 — can earn before excess earnings are taxed at his or her parents’ rate will rise to $1,800 for 2008, up $100 from 2007.
Tax-free parking and transit passes. Employers will be allowed to give employees parking valued at $220 a month as a tax-free fringe benefit in 2008.