Even if your income is no higher in 2008 than it was in 2007, you can expect your tax bill to be lower. Why? Every year, cost of living adjustments to various tax items means you'll pay less than you did in the prior year on the same amount of income. Also, because of inflation adjustments, you may qualify for tax brackets from which you were barred in 2007. Here are some changes that are sure to help you save taxes.
The tax brackets, standard deduction amounts, and personal exemption have all been increased for 2008. Compare some of the limits for 2008 with the limits in effect for 2007.
Item |
2008 |
2007 |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Personal exemption |
|
|
Example: If you are single (under age 65), no dependents, and claim the standard deduction, and have wages of $42,000, your tax bill in 2008 is $4,606.25, or $130 lower than it was for 2007 ($4,736.25).
Kiddie tax. The amount of a child's unearned income that escapes the kiddie tax (that is, is taxed to the child at the parent's highest rate) has increased to $1,800; in 2007 it was $1,700.
The modified adjusted gross income (MAGI) limits on claiming various personal tax credits have been increased. This means you may be eligible for credits this year even though your MAGI precluded you from claiming them last year.
The MAGI limit on eligibility to deduct student loan interest up to $2,500 has increased in 2008 to $55,000, or $115,000 on a joint return.
Transportation fringe benefit limits have increased in 2008 so that free parking can be valued at up to $220 (it was $215 in 2007). Monthly transit passes are tax free up to $115 in 2008; the limit in 2007 was $110.
The annual gift tax exclusion that exempts gifts from gift tax remains unchanged in 2008 at $12,000, the same exclusion amount in 2007.
As you reduce your regular tax through rate changes and other tax item adjustments, you potentially increase your exposure to the alternative minimum tax (AMT), a parallel tax system with its own tax rules. If tax under the AMT is higher than tax under the regular tax system, you pay the higher amount.
What a willing buyer would pay to a willing seller when neither is under any compulsion to buy or sell.