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.