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Inflation (and other) adjustments for 2007 may impact your taxes and planning
A number of cost-of-living adjustments are built into the Tax Code. Other important amounts and thresholds change as a result of schedules introduced in tax legislation.
Here is a brief summary of some of the key number changes that may have an impact on your income tax, retirement and estate planning in 2007.
Changes affecting income taxes
- After adjustment for inflation, the 2007 standard deduction amounts will be as follows (2006 amounts included for comparison):
| |
2007 |
2006 |
| Single |
$5,350 |
$5,150 |
| Married filing jointly and surviving spouse |
$10,700 |
$10,300 |
- The 2007 personal exemption amount rises to $3,400 (up from $3,300 in 2006).
- Since 1991 a taxpayer's personal exemptions are phased out as his or her adjusted gross income (AGI) exceeds a certain threshold amount. In 2007 the phaseout ranges are as follows:
| |
2007 |
2006 |
| |
Phaseout begins when AGI exceeds |
Phaseout completed when AGI exceeds |
Phaseout began when AGI exceeded |
Phaseout completed when AGI exceeded |
| Single |
$156,400 |
$278,900 |
$150,500 |
$273,000 |
| Married filing jointly and surviving spouse |
$234,600 |
$357,100 |
$225,750 |
$348,250 |
- Total itemized deductions are reduced by 2% of your AGI in excess of specified threshold amounts (but not by more than 80% of itemized deductions subject to the rule). The threshold amount for 2007 is $156,400 (up from $150,500). For married filing separately only: $78,200, up from $75,250.
- The "kiddie tax" rules require that a child's unearned income (dividends and interest, for example) be taxed at the parent’s usually higher rate. Previously, the kiddie tax applied only to a child who was under age 14 and had net unearned income over a certain threshold. and if the parent claimed the child as a dependent. Starting this year, the age limit of the kiddie tax is expanded to include those under age 18. (The net income threshold for 2007 remains at $850.)
- The tax rate schedules for singles and married filing jointly in 2007 are as follows:
Single
| If taxable income is: |
The tax is: |
| Not over $7,825 |
10% of taxable income |
| Over $7,825 but not over $31,850 |
$782.50 plus 15% of the excess over $7,825 |
| Over $31,850 but not over $77,100 |
$4,386.25 plus 25% of the excess over $31,850M |
| Over $77,100 but not over $160,850 |
$15,698.75 plus 28% of the excess over $77,100 |
| Over $160,850 but not over $349,700 |
$39,148.75 plus 33% of the excess over $160,850 |
| Over $349,700 |
$101,469.25 plus 35% of the excess over $349,700 |
Married filing jointly
| If taxable income is: |
The tax is: |
| Not over $15,650 |
10% of taxable income |
| Over $15,650 but not over $63,700 |
$1,565 plus 15% of the excess over $15,650 |
| Over $63,700 but not over $128,500 |
$8,772.50 plus 25% of the excess over $63,700 |
| Over $128,500 but not over $195,850 |
$24,972.50 plus 28% of the excess over $128,500 |
| Over $195,850 but not over $349,700 |
$43,830.50 plus 33% of the excess over $195,850 |
| Over $349,700 |
$94,601 plus 35% of the excess over $349,700 |
Changes affecting estate planning
- The estate tax and generation-skipping transfer tax exemption amounts in 2007 remain at $2 million. The maximum lifetime gift exemption amount remains at $1 million.
- The top gift and estate tax rate drops from 46% to 45%.
- The annual gift tax exclusion remains at $12,000 for 2007.
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