1.1 Charitable Contributions: New recordkeeping requirements for cash contributions. You cannot deduct a cash contribution, regardless of the amount, unless you keep as a record of the contribution a bank record (such as a canceled check, a bank copy of a canceled check, or a bank statement containing the name of the charity, the date, and the amount) or a written communication from the charity. The written communication must include the name of the charity, date of the contribution, and amount of the contribution. For more information, refer Publication 526.

1.2 Mortgage Insurance Premium Deduction: Premiums that you pay or accrue for “qualified mortgage insurance” during 2007 in connection with home acquisition debt on your qualified home are deductible as an itemized deduction. The amount you can deduct is reduced by 10% (.10) for every $1,000 ($500 if your filing status is married filing separately) by which your adjusted gross income exceeds $100,000 ($50,000 if your filing status is married filing separately). For the definitions of home acquisition debt and qualified home, refer Publication 936.

1.3 Standard Mileage Rate: The mileage deduction rates for the tax year 2007 for the use of a car (including vans, pickups or panel trucks) are:

• 48.5 cents per mile for business miles driven;
• 20 cents per mile driven for medical or moving purposes; and
• 14 cents per mile driven in service to a charitable organization

1.4 Standard Deduction Amount Increased: The standard deduction for taxpayers who do not itemize a deduction(s) on Schedule A of Form 1040 is, in most cases, higher for 2007 than it was for 2006. The amount of the deduction depends on your filing status, whether you are 65 or older or blind, and whether an exemption can be claimed for you by another taxpayer.
The basic standard deduction amounts for 2007 are:

• Head of household deduction is $7,850
• Married taxpayers filing jointly and qualifying widow(er)s deduction is $10,700
• Married taxpayers filing a separate deduction is $5,350
• Single deduction is $5,350

For 2007, the additional standard deduction amount for a person who is age 65 or older or blind is $1,050. If you are single and not a surviving spouse, the additional standard deduction amount is $1,300.

1.5 Exemption Amount Increased: The amount of the deduction for each exemption has increased from $3,300 in 2006 to a deduction of $3,400 in 2007.

The amount you can claim as a deduction for exemptions is reduced once your adjusted gross income (AGI) goes above a certain level for your filing status. These levels are as follows:

• $156,400 for single individuals,
• $195,500 for heads of household, 
• $234,600 for married persons filing jointly or qualifying widow(er)s, and
• $117,300 for married persons filing separately.

1.6 Alternative Minimum Tax (AMT): The following changes to the AMT went into effect for 2007.

AMT exemption amount decreased. The AMT exemption amount has decreased to $33,750 ($45,000 if married filing jointly or qualifying widow(er); $22,500 if married filing separately). The minimum exemption amount for a child under age 18 has increased to $6,300. Hurricane Katrina additional exemption expired.

Certain credits no longer allowed against the AMT. The credit for child and dependent care expenses, credit for the elderly or the disabled, education credits, residential energy credits, mortgage interest credit, and the District of Columbia first-time homebuyer credit are no longer allowed against the AMT, and a new tax liability limit applies. This limit is your regular tax minus any tentative minimum tax (figured without any AMT foreign tax credit).

1.7 Social Security and Medicare Taxes: The maximum amount of wages subject to the social security tax for 2007 is $97,500. There is no limit on the amount of wages subject to the Medicare tax.

1.8 Income Limits Increased for Student Loan Interest Deduction: For 2007, the amount of the student loan interest deduction is phased out if your modified adjusted gross income (MAGI) is between $55,000 and $70,000 (between $110,000 and $140,000 if married filing jointly). You cannot take the deduction if your MAGI is $70,000 or more ($140,000 or more if married filing jointly). For more information, refer chapter 4 in Publication 970.

1.9 Income Limits Increased for Hope and Lifetime Learning Credits: For 2007, the amount of your Hope or lifetime learning credit is phased out (gradually reduced) if your modified adjusted gross income (MAGI) is between $47,000 and $57,000 ($94,000 and $114,000 if you file a joint return). You cannot claim an education credit if your MAGI is $57,000 or more ($114,000 or more if you file a joint return). For more information, refer chapters 2 and 3 in Publication 970, Tax Benefits for Education.

1.10 Earned Income Amount for Additional Child Tax Credit: For 2007, the minimum earned income amount used to figure the additional child tax credit has increased to $11,750.

1.11 Limit on Itemized Deductions Increased: For 2007, your itemized deductions begin to phase out if your AGI is $156,400 or higher ($78,200 if married filing separately). 

Who can claim itemized deductions?: Generally, you must decide whether to itemize deductions or to use the standard deduction. You should itemize deductions if your allowable itemized deductions are more than your standard deduction. Some taxpayers must itemize deductions because they do not qualify for the standard deduction. Those taxpayers not eligible to use the standard deduction include nonresident aliens, dual–status aliens, and individuals who file returns for periods of less than 12 months. When a married couple files separate returns and one spouse itemizes deductions, the other spouse must also itemize deductions.

Itemized deductions phase out limit applies to all itemized deductions except medical and dental expenses, casualty and theft losses, gambling losses, and investment interest. They are reduced by 3% of the extent that your AGI exceeds this level.  For instance, if you have AGI of $200,000, your itemized deductions are reduced by (200000-156400)*.03, or $1308.

When to itemize? You may benefit from itemizing your deductions on Schedule A (Form 1040) if you:

1. Do not qualify for the standard deduction, or the amount you can claim is limited,
2. Had large uninsured medical and dental expenses during the year,
3. Paid interest and taxes on your home,
4. Had large unreimbursed employee business expenses or other miscellaneous deductions,
5. Had large uninsured casualty or theft losses,
6. Made large contributions to qualified charities, or
7. Have total itemized deductions that are more than the standard deduction to which you otherwise are entitled.

1.12 Earned Income Credit (EIC): The earned income credit (EIC) is a tax credit for certain people who work and have lower earned income in a tax year. A tax credit usually means more money in your pocket. It reduces the amount of tax you owe. The EIC may also give you a refund.

The maximum amount of income you can earn and still get the credit has increased for 2007. You may be able to take the credit if:

 The maximum amount of the credit has also increased. The most you can get is: