As if our federal tax code isn’t complicated enough, the Internal Revenue Service goes and changes it every year. And 2008 was no different. The IRS adjusted tax brackets, exemptions, and standard deductions for inflation and added new credits. Here’s a quick rundown of some of the 2008 tax changes most likely to impact twenty-somethings.
Adjustments for Inflation
The personal exemption you claim for yourself and each dependent is $100 more in 2008; now $3,500. The standard deduction, used by filers that don’t itemize deductions, also went up. Single filers will see a $100 increase, to $5,450. For married couples filing jointly, the deduction went up $200 to $10,900. For heads of household, the standard deduction is up $150 to $8,000. Finally, the minimum income levels required to trigger each tax bracket have gone up approximately 2%. All of these adjustments for inflation mean that if you made the exact same money in 2008 as in 2007, your tax bill will go down.
Other 2008 Tax Changes
- $7,500 Tax Credit for First-Time Home Buyers. If you bought a home after April 8, 2008, you may be eligible to take a new first-time home buyer tax “credit” of 10% of the purchase price, up to $75,000. I put credit in quotes because it’s actually an interest-free loan that must be repaid over your next fifteen tax returns.
- IRAs Have Higher Income Limits. The maximum incomes allowed to take a full deduction for a traditional IRA contributions have increased to $53,000 for single filers and $85,000 for married joint filers. Partial deductions are allowed for single filers making $73,000 or less and married joint filers earning $105,000 or less. Contribute to a Roth IRA? The amounts you can contribute to a Roth begin to be phased out above incomes of $101,000 (single) and $159,000 (married/joint).
- Property Taxes Standard Deduction. If you paid property taxes in 2008, you can claim a deduction of up to $1,000 (joint) and $500 (single) for real estate taxes paid, even if you don’t itemize.
- State and Local Sales Tax Deduction. Filers have a choice of deducting state and local income taxes or the state sales tax. Although the option to deduct state sales tax was set to expire this year, it was reinstated for 2008.
- Income Earned Abroad. The maximum amount of foreign-earned income you can exclude is up to $87,600 from $85,700.
- Teacher’s Deduction. The educator’s deduction for up to $250 of classroom supplies purchased by teachers will be in effect in 2008. This deduction is set to disappear after 2009.
- Tuition and Fees Deduction. Another deduction that was set to expire in 2008, the deduction for up to $4,000 of college tuition and fees will remain in effect in 2008 and 2009.
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