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IRS Unveils 2007 Inflation Adjustments

by Mike Godfrey, Tax-News.com, Washington

13 November 2006

Personal exemptions and standard deductions will rise, tax brackets will widen and income limits for IRAs will increase in 2007, as a result of inflation adjustments announced last Thursday by the US Internal Revenue Service.

The IRS explained that:

"By law, the dollar amounts for a variety of tax provisions must be revised each year to keep pace with inflation. As a result, more than three dozen tax benefits, affecting virtually every taxpayer, are being adjusted for 2007."

Key changes affecting 2007 returns, filed by most taxpayers in early 2008, include the following:

  • The value of each personal and dependency exemption, available to most taxpayers, will be $3,400, up $100 from 2006.
  • The new standard deduction will be $10,700 for married couples filing a joint return (up $400), $5,350 for singles and married individuals filing separately (up $200) and $7,850 for heads of household (up $300). Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.
  • Tax-bracket thresholds will increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket will be $63,700, up from $61,300 in 2006.

In 2007, for the first time, inflation adjustments will raise the income limits that apply to the retirement savings contributions credit, contributions to a Roth IRA and deductible contributions to a traditional IRA where the taxpayer or the taxpayer’s spouse is covered by a retirement plan at work.

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