The IRS has announced a series changes to the 2008 Individual Tax Return Laws that will have mostly a positive impact on the tax returns of individual tax returns. Here are some of the most important highlights of individual tax law changes for the 2008 Tax Year Filings. 1. An increase in 2008 Standard Deduction The IRS has increased the 2008 standard deductions for taxpayers. The 2008 standard deductions are as follows: $10,900 for married couples filing a joint return and qualifying widows and widowers, an increase of up to $200 from 2007. $5,450 for singles and married individuals filing separate returns, an increase of up to $100 from 2007. $8,000 for heads of household, an increase of up to $150 from 2007. Furthermore, the IRS has announced higher amounts of standard deductions would apply to blind people and senior citizens. Also new to the 2008 Tax Year is that taxpayers can claim an additional standard deduction, based on the state or local real-estate taxes paid in 2008. The maximum deduction is has been established by the IRS at $500 for Single Filers, or $1,000 for joint filers. 2.An increase in 2008 Personal Exemptions For the Tax Year 2008, the IRS has increased the personal and dependency exemption amounts to $3,500, up $100 from 2007. 3.First-Time Homebuyer Credit Taxpayers that bought a new home recently may qualify for the first-time homebuyer credit. In order to qualify, the taxpayer should not have owned a home during the prior three years. This "First-Time Homebuyer Credit" credit can be as much as $7,500 and functions more like a 15-year interest-free loan. This tax credit has to be repaid back in 15 equal installments an additional tax This credit was created to jump start the sagging housing market and Congress wanted it to be available for "a limited time only on homes bought from April 9, 2008, to June 30, 2009." 4.Phase Out Amounts Rise for IRAs and Other Retirement Plans For the tax year 2008, taxpayers can now take advantage of more tax-deductible contributions to a traditional IRA. The deduction is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $53,000 and $63,000, compared to $52,000 and $62,000 last year. For married couples filing jointly, in which the spouse who makes the IRA contribution and is covered by a workplace retirement plan, the income phase-out range is $85,000 to $105,000, up from $83,000 to $103,000 last year. Whereas for an IRA contributor who is not covered by a retirement plan from their employer, and is married to someone who is covered, the deduction is phased out if the couple's income is between $159,000 and $169,000, up from $156,000 and $166,000 in 2007. For 2008, the elective deferral (contribution) limit for employees who participate in 401(k), 403(b) and most 457 plans remains unchanged at $15,500. This limit rises to $16,500 in 2009. The catch-up contribution limit for those aged 50 to 70 1/2 remains at $5,000 in 2008 but rises to $5,500 in 2009. The AGI phase-out range for taxpayers who contribute to a Roth IRA is $159,000 to $169,000 for joint filers and qualifying widows and widowers, compared to $156,000 to $166,000 in 2007. For singles and heads of household, the comparable phase-out range is $101,000 to $116,000, compared to $99,000 to $114,000 in 2007. 5. Taxes Lowered for Many Investors For the Tax Year 2008, the five-percent tax rate on qualified dividends and net capital gains that was applicable prior to 2007 is now reduced to zero. This reduction applies to taxpayers whose taxable income is below: $65,100, if married filing jointly or qualifying widow or widower $32,550, if single or married filing separately or $43,650, if head of household. 6. Earned Income Tax Credit Rises The maximum earned income tax credit (EITC) has been increased for the tax year 2008 for all the tax filing status. The new tax credit is as follows: $4,824 for people with two or more qualifying children, an increase from $4,716 in 2007. $2,917 for taxpayers with one child, an increase from $2,853 in 2007. $438 for taxpayers with no children, an increase from $428 in 2007. 7. Tax Deduction for Property Taxes for Non-Itemizers Taxpayers who don't itemize their deductions in Tax Year 2008 would be allowed a deduction for property taxes paid. This would enable taxpayers to receive a larger standard deduction. Joint filers can deduct up to $1,000 of property taxes that were paid in 2008. Singles can deduct up to $500 of real estate tax payments made during the year. 8. Increased Exemptions for the Alternative Minimum Tax (AMT) For the Tax Year 2008, Congress increased the AMT exemptions for 2008 to prevent millions of additional taxpayers from having to pay the minimum tax. Thus, for 2008, the exemptions are $46,200 for single taxpayers and heads of households, $69,950 for married couples filing joint returns, and $34,975 for married couples filing separately. 9. A Tougher and Expanded "Kiddie Tax" In 2008, a child's investment income of more than $1,800 is taxed at the parents' higher rate. The first $900 of a child's unearned income is tax-free and the next $900 would be taxed at his or her own rate However, starting in 2008, the kiddie tax will be expanded to include dependents younger than 19 and dependent full-time students younger than 24. The new kiddie tax rules limit the ability of taxpayers to shift income to their younger children. 10. Reinstatement of the State and Local Sales Tax Deduction The IRS has reinstated providing an opportunity to taxpayer's who itemize to choose between "deducting their state sales tax payments or deducting state and local income taxes paid. Clearly having records of actual sales taxes paid in 2008 would be very helpful in determining which choice is best for the taxpayers. 11. Educators' Deduction This Educators' deduction for up to $250 for any classroom supplies purchased by educators was revived for 2008.
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