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WHATíS NEW FOR 2007

Tax rates:
10%, 15%, 25%, 28%, 33% and 35%

Long term capital gains rate for 2007:
5%, for the 15% bracket or below, 15 % for the 24% bracket or above.

Standard Mileage Rate Increased:
 For 2007, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck is increased to 48.5 cents per mile for business miles.

For 2008 the rate will increase to 50.5 cent per mile.

Tax Benefits for Education: Employer-Provided Educational Assistance: The tax-free status of up to $5,250 of employer-provided educational assistance benefits each year for undergraduate-level courses was scheduled to end for courses beginning after 2001. This benefit has been extended indefinitely and, beginning in 2002, it also applies graduate-level courses.

Employer-Provided Educational Assistance: The tax-free status of up to $5,250 of employer-provided educational assistance benefits each year for undergraduate-level courses was scheduled to end for courses beginning after 2001. This benefit has been extended indefinitely and, beginning in 2002, it also applies graduate-level courses.  This remains unchanged for 2007.

New Deduction for Higher Education Expenses: Beginning in 2002, you may be able to deduct qualified tuition and related expenses paid during the year for yourself, your spouse, or a dependent, even if you do not itemize deductions on Schedule A, Form 1040.

Maximum Deduction: For tax years beginning in 2002 and 2003 you can deduct up to $3,000 you paid for qualified tuition and related expenses as an adjustment to income. For 2004 and 2005, you may be able to deduct up to $4,000.

Income limits: For tax years beginning in 2002 and 2003 you can deduct up to $3,000 of qualified tuition and related expenses if your modified adjusted gross income (MAGI) is not more than $65,000 ($130,000 on a joint return), you cannot take the deduction.

Student Loan Interest Deduction: If you pay interest on a student loan, you may be able to deduct the interest as an adjustment to income. Beginning in 2002, you are no longer limited to deducting interest paid only during the first 60 months that interest payments are required. You may deduct up to $2,500 of the interest you pay on student loans each year.

Individual Retirement Arrangements (IRAís)

Increased traditional IRA Contribution and Deduction Limits:

The most that can be contributed to your traditional IRA for 2007 is the lesser of:

  • $4,000  or your compensation that you must include in income.

If you are 50 or older in 2002, the most that can be contributed to your traditional IRA for 2002 is the lesser of: 

  • $5,000 or your compensation that you must include in income.

Increased ROTH IRA Contribution Limit is the same as above.

Qualified Plans 

Elective Deferrals (401(k) Plans):

The limit on elective deferrals for participants in 401(k) plans (excluding SIMPLE plans) increases for tax years beginning after 2001. The limit for 2002 and later years is as follows:

Year                      Limit
2002                  $11,000
2003                  $12,000
2004                  $13,000
2005                  $14,000
2006                  $15,000
2007                  $15,500

Note: The $15,000 limit is subject to adjustment after 2006 for cost-of-living increases.

Catch-Up contributions.
For tax years beginning after 2001, a plan can permit participants who are age 50 or over at the end of the plan year to make catch-up contributions. The catch-up contribution limit for 2002 and later years is as follows:

Year                  Catch-up Limit
2002                  $1,000
2003                  $2,000
2004                  $3,000
2005                  $4,000
2006                  $5,000 
2007                  $5,000

Note: The $5,000 limit is subject to adjustment after 2006 for cost-of-living increases. The catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts: 

  • The catch-up contribution limit.

  • The excess of the participantís compensation over the elective deferrals that are not catch-up contributions.

 

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