Look at What’s New for 2007
Every new year offers some surprises, and 2007 is no exception. Here’s a look at some of the changes—big and small—that may affect your finances this year.
Medicare Part B premiums tied to income
Beginning in 2007, Medicare Part B premiums will be higher for beneficiaries with higher incomes. You’ll pay an income-related premium if your modified adjusted gross income exceeds $80,000 if you’re single, or $160,000 if you’re married and file your taxes jointly. If you’re already receiving Medicare and are among those affected, you should have already been notified by the Social Security Administration. If you enroll in Medicare Part B this year, you can expect to be notified shortly after enrolling in the program.
Tax refunds can be split up
If you expect a federal income tax refund this year, here’s a bit of good news. Taxpayers will now be able to split a direct deposit tax refund into as many as three different accounts with three different financial institutions, making it easier to put a tax refund to work toward several financial goals. Regular passbook savings accounts, individual retirement arrangements (IRAs), health savings accounts (HSAs), and Coverdell education savings accounts are among the potential savings options. Of course, you’ll need to check with your financial institution first to make sure it accepts direct deposit refunds—not all will. And to make sure your refund is properly split, you’ll need to follow carefully the instructions from the IRS and your financial institution.
Refunds due for telephone excise tax paid
More than a century after it was introduced as a luxury tax on wealthier individuals, the federal excise tax on long-distance telephone service has been discontinued. The IRS will refund a portion of tax paid by individuals, nonprofits, and businesses when they file their 2006 income tax returns.
Although this refund won’t make you wealthy—you’ll be able to claim a refund only for excise tax paid on long-distance service billed after February 28, 2003, and before August 1, 2006—it will put a few extra dollars in your pocket. If you don’t want to pour over old phone records to determine the exact amount of tax you’ve paid, you can claim a standard refund amount ranging from $30 to $60, depending on how many exemptions you claim on your 2006 federal income tax return. Nonprofits and businesses can either claim refunds of the actual amount of excise tax paid or estimate their refunds using a formula.
Charitable contributions from IRAs allowed
If you’re over 70½ and need to take required minimum distributions from your IRA, you may benefit from a new rule that allows you to contribute as much as $100,000 to a qualified charity directly from your IRA. These IRA distributions are tax free and satisfy minimum distribution requirements. But if you want to make a charitable contribution from IRA funds, don’t wait—this option is available only until the end of 2007.
Charitable deductions need more documentation
If you give cash to your favorite charity in 2007, ask for a receipt. The IRS now requires that you have a receipt or other written confirmation for all cash contributions for which you are claiming a deduction, not just for those exceeding $250. Bank records, such as cancelled checks, bank statements, or credit card statements showing the transaction, can also be used as support. Supporting documents must show the name of the charity as well as the date and amount of your contribution.