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Individual Income Tax 2007 Update. Shana L. Francis Kevin D. Klein. Today’s Presentation. 2007 Federal Update Looking Forward: 2008 Federal Changes 2007 Virginia Update Looking Forward: 2008 Virginia Changes. Elective Salary Deferrals. 401(k) maximum elective deferral for 2007:

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slide1

Individual Income Tax

2007 Update

Shana L. Francis

Kevin D. Klein

today s presentation
Today’s Presentation
  • 2007 Federal Update
  • Looking Forward: 2008 Federal Changes
  • 2007 Virginia Update
  • Looking Forward: 2008 Virginia Changes
elective salary deferrals
Elective Salary Deferrals
  • 401(k) maximum elective deferral for 2007:
    • Under age 50: $15,500
    • “Catch up” contribution of $5,000 allowed if age 50 or older
ira contributions
IRA Contributions
  • Maximum to a traditional or Roth is $4,000
  • Catch up contribution of $1,000 for taxpayers at least age 50 by the end of 2007
  • Have until due date of return (not including extension)
health savings accounts
Health Savings Accounts
  • Pay out-of-pocket medical expenses with pre-tax income
  • Fund an HSA account with direct transfer from IRA
  • Maximum Contribution of $2,850 for single coverage ($5,650 for family coverage)
  • If 55 or older, additional $800 catch-up contribution is available
higher education expenses
Higher Education Expenses
  • Expires after 2007
  • Deduct up to $4,000 instead of Hope or Lifetime Learning tax credits
  • Subject to phase out
  • Deduction taken on Form 8917
qualified educator expenses
Qualified Educator Expenses
  • Available for any Teacher, Instructor, Counselor, Principal, or Aides teaching K-12 grades
  • Must work at least 900 hours during taxable year
  • Can deduct “above-the-line” up to $250 of expenses incurred for books and (non-athletic) supplies
  • Expires after 2007 taxable year
sales use tax deduction
Sales & Use Tax Deduction
  • Available through 2007
  • Deduct either state income tax or sales and use tax
  • Use Receipts Method or Sales Tax Table
mortgage insurance premiums
Mortgage Insurance Premiums
  • Mortgage insurance required when loan balance > 80% of FMV of property
  • Mortgage premiums now able to be deducted as qualified residence interest
  • By law, homeowners are not subject to mortgage insurance premiums when loan balance falls below 78% of FMV of property
charitable contribution substantiation
Charitable Contribution Substantiation
  • Some form of substantiation for charitable contributions must be retained

Examples: Cancelled check, Letter from Charity, etc.

  • Deductions only available if taxpayer itemizes deductions
  • Distributions directly from IRA, expires in 2007
education credits
Education Credits
  • Hope Credit
    • Maximum $1,650 credit per student
    • First 2 years of undergraduate education
    • Half time student
  • Lifetime Learning Credit
    • Maximum $2,000 credit per return
    • Available for unlimited number of years
    • Less than half time enrollment-non degree seeking students

*Both credits subject to phase-out

alternative motor vehicle credit
Alternative Motor Vehicle Credit
  • Credit between $650 and $3,400 generally available
  • Credit phases out over one year after manufacturer sells over 60,000 qualified vehicles
    • First six months into phase out period, purchasers receive 50% of credit
    • Last six months, purchasers receive only 25% of credit
telephone excise tax credit
Telephone Excise Tax Credit
  • Was only available on your 2006 return
  • Can file a From 1040X to amend return to claim credit
residential energy credits
Residential Energy Credits
  • Nonbusiness Energy Property Credit
    • Residential exterior doors, windows, heat pumps, furnaces, central air and water heaters for principal residences only
    • Available for items placed into service in 2006 or 2007
  • Lifetime Maximum of $500 in credit
    • Max $200 credit for qualified windows
    • Max $50 credit for qualified ceiling fans
    • Max $150 credit on qualified natural gas, propane, or oil furnace or hot water boiler
    • Max $300 credit on any item of energy-efficient building property
residential energy credits cont
Residential Energy Credits Cont.
  • Residential Energy Efficient Property Credit
    • 30% of the cost of eligible solar water heaters, solar electricity equipment and fuel cell plants placed in service in 2006 and 2007
    • Maximum credit is $2,000 per tax year for each category or solar equipment and $500 for each half of kilowatt of capacity or fuel cell plants installed per year
    • Cannot be used to heat swimming pools and hot tubs
excluded combat pay
Excluded Combat Pay
  • Can elect to have excluded combat pay count as earned income in the calculation for the earned income tax credit
  • Counts towards “compensation” for IRA contribution limitations
looking forward 2008
Looking forward: 2008
  • Elective deferrals contribution limits will remain the same as 2007 amounts
  • IRA contributions will increase by $1,000
  • Expiring adjustments, credits, and deductions
looking forward 2008 kiddie tax
Looking Forward: 2008 Kiddie Tax
  • Now effects children ages 19-23 who are full time students
  • Earned income is less than half of support
  • Investment income greater than $1,800
looking forward 2008 capital gains
Looking Forward: 2008 Capital Gains
  • Capital gains that would have been taxed at 5% will not be taxed at all
  • Capital gains that would have been taxed at 15% will remain at 15%
  • Will expire in 2010 when the 0% rates will go to 10% and 15% rates will go to 20%
virginia sales tax holidays
Virginia Sales Tax Holidays
  • May 25-31, 2008 – Hurricane Preparedness Equipment
  • August 1-3, 2008 – School Supplies, Clothing & Footwear
  • October 10-13, 2008 – Energy Star Qualified Products
virginia deduction for energy efficient purchases
Virginia Deduction for Energy Efficient Purchases
  • New in 2007, Virginia offers deduction for sales tax paid on energy efficient items
  • Deduction is 20% of sales tax paid on purchase
  • Deduction limited to $500 per taxable year
looking forward virginia
Looking Forward: Virginia
  • College Savings Plans
    • Effective 2009, allowable deduction for contributions will increase to $4,000 per plan
    • Note: there are currently no restrictions on deduction amounts for individuals who are 70 or older
summary
Summary
  • 2007 Federal Updates
  • Looking Forward: 2008 Federal Changes
  • 2007 Virginia Updates
  • Looking Forward: 2008 Virginia Changes
questions
Questions
  • Shana L. Francis
    • Phone: 804-545-7448
    • Email: sfrancis@theroselinegroup.com
  • Kevin D. Klein
    • Phone: 804-545-7459
    • Email: kklein@theroselinegroup.com

The Roseline Financial Group, LLC

140 Virginia St., Suite 200

Richmond, VA 23219