2008 Tax Changes and Considerations
The 2008 tax year also has some notable changes that you should be aware of now. We have highlighted the changes that may affect the majority of filers.
Standard Deductions for 2008
The standard deductions have been increased slightly for 2008. Single filers get a $100 increase, married couples received a larger $250 increase, and heads of household filers receive a $200 increase.
- Single - $5,450
- Married filing separately - $5,450
- Head of household - $8,050
- Married taxpayers filing jointly / qualifying widow(er)s - $10,950
- Married taxpayers filing separately - $5,450
Exemptions for 2008
Each personal exemption you claim in 2008 will be worth $3500, an increase of $100.
IRA Contribution Limit Increase
The maximum contribution for traditional and Roth IRAs in 2008 has been increased from $4000 to $5000, a nice 25% increase. If you reach the age of 50 before January 1st, 2009, you can contribute up to $6000.
Higher Income Limits for Deductible and Roth IRAs
For taxpayers that are covered by a retirement plan at work, a full IRA deduction may be taken if the AGI is less than $53,000 (single filers) or $85,000 (married joint filers). Partial deductions are allowed to the thresholds of $73,000 (single filers) and $105,000 (married). High income earners also get some good news - the Roth phase-out AGIs have increased to the ranges of $159,000-to-$169,000 (married filers) or $101,000-to-$116,000 (single filers).
Long Term Capital Gains and Dividend Tax Rates for 10-15% Bracket
If you fall in the 10 and 15 percent tax bracket, you receive some additional tax breaks. Long term (assets held longer than one year) capital gains are taxed at zero percent. Additionally, the tax rate on dividends goes to zero! Note these are only good (currently) through 2010. While temporarily, this is great news if you are in the 10 and 15 percent brackets.
Kiddie Tax
The amount of investment income a child under age 19 (under age 24 for a full time student) may earn before excess earnings are taxed at her parents' rate rises from $1700 to $1800.
Extra Standard Deduction for Taxpayers Age 65 and Over
Married filers age 65 and older are allowed an extra $1050 on top of the regular standard deduction (no change from 2007) but single filers get an extra $1350, an increase of $50 from 2007.
Parking and Transit
Employer paid parking up to $220/month will not be taxed for employees, an increase of $5/month from 2007. Tax-free transit passes have an increased cap of $5/month as well to $115/month.
A couple of other things to watch for are the tuition (up to $4000 for college tuition and fees) and educators' deductions (up to $250 for classroom supplies). These expired after 2007 but the expectation is that Congress will renew these deductions.