What you need to know before you file
By: WROC
Updated: June 24, 2008
IRS Tax Tip 2007-26
Taxpayers should be aware of important changes to the tax law before they complete their 2006 federal income tax forms. Here are some changes that may affect your return.
New energy-saving tax credits. A residential energy credit may be taken for amounts paid for qualified energy saving items installed in connection with a taxpayer's home.
Alternative motor vehicles. Taxpayers may be able to take a credit if they place an alternative motor vehicle (including a qualified hybrid vehicle) or alternative fuel vehicle refueling property in service. Taxpayers can no longer take a deduction for clean-fuel vehicles or refueling property.
IRA deduction expanded. A taxpayer may be able to take an IRA deduction if they were covered by a retirement plan and their modified AGI is less than $85,000 if married filing jointly or qualifying widow(er).
For purposes of taking an IRA deduction, earned income includes any nontaxable combat pay received by a member of the U.S. Armed Forces.
New rules on donations to charity. To be deductible, clothing and household items donated to charity after Aug. 17, 2006, must be in good used condition or better. However, this rule does not apply to a contribution of any single item for which a deduction of more than $500 is claimed and for which the taxpayer includes a qualified appraisal and Form 8283 with the taxpayer's return.
IRA distribution for charitable purposes. A distribution from an IRA that was made directly by the trustee to a qualified charitable organization may be nontaxable if the taxpayer was at least 70 ½ when the distribution was made.
Tax on children's income. Form 8615 must be used to figure the tax of children under 18 with investment income of more than $1,700. The election to report a child's investment income on a parent's return and the special rule for when a child must file Form 6251 now apply to children under age 18.
Extenders Legislation. This new legislation affects a number of areas, most significantly state and local sales tax, higher education tuition and fees, and educator expenses. See IRS.gov for specific instructions on how to claim these deductions on paper tax returns (most electronic filing software packages will automatically take these late changes into account).
Also new this year, two changes may affect the amount of your refund or the way in which you choose to receive your refund.
Telephone Excise Tax Refund. Individual taxpayers will be able to request a refund if they paid the federal excise tax on long-distance or bundled service.
New Split Refund Option. Taxpayers choosing direct deposit for their refunds may be able to split their refunds among up to three accounts.
For more information, visit the IRS Web site at www.IRS.gov. Also, see Publication 553, Highlights of 2006 Tax Changes, and the instruction book for Form 1040.
