Even though 2007 taxes may still be on your mind, here are some items to consider for 2008.
Retirement savings. Employees who participate in a 401(k) plan are allowed to sock away up to $15,500 for 2008—if they can afford it and their plan permits maximum contributions. Participants 50 or older can put in an additional $5,000.
The individual contribution cap for IRAs is $5,000, up $1,000 from 2007; people 50 or older can add an extra $1,000, the same as in 2007.
The income levels that may limit IRA contributions are raised. Joint filers with income of up to $159,000 can, for example, fully contribute to a Roth IRA in this year, up from $156,000 in 2007. Various other ceilings for Roth and traditional IRAs also are higher.
Standard deduction. For many taxpayers with limited deductible expenses, saving receipts to itemize deductions is not an imperative.
For 2008, these non-itemizers can claim a standard deduction of $10,900 on a joint return, or $13,000 if both spouses are 65 or older. A single can claim $5,450, or $6,800 if 65 or older. An unmarried head of household gets $8,000, or $9,350 if at least 65.
Itemized deductions. People who do claim itemized deductions may lose less of the benefit because of their income. A phaseout of itemized deductions begins when 2008 adjusted gross income tops $159,950, compared with $156,400 for 2007. The phaseout itself is also less severe than in 2007.
Education. Parents and others paying for college may have to rethink their options. Unless it is extended by Congress, a deduction for college tuition is dead. But the higher-education Hope credit increases to $1,800 from $1,650. The alternative Lifetime Learning credit is unchanged at $2,000.
Alert: Teachers who dig into their own pockets to buy classroom supplies may get less tax help this year unless Congress reinstates an expired deduction for up to $250 of such spending.
Capital gains. How about a tax rate of zero? While most investors pay tax of 15 percent on their long-term capital gains, starting this year, people in the lowest two tax brackets will pay no tax.
Included are people with taxable income up to $65,100 on a joint return, after deductions and exemptions, and $32,550 on a single return. A sizable gain, though, could easily push them into the higher brackets. But at least some of their gain may escape tax.
Kiddie tax. Parents who try to shave overall tax by shifting income-producing assets to their lower-taxed children get attacked anew by the tax code. For 2008, investment income over $1,800 of children 18 or younger—or through age 23 if a full-time student—may be taxed at the parent's tax rate. In 2007, this provision applied through age 17, and before a tightening in 2006, only youngsters under 14 were affected.
Foiled: parents who planned to have their youngsters cash in on capital gains at 2008's zero percent tax rate.
On the road. People who drive for business and opt to take a fixed per-mile tax deduction rather than claiming depreciation and other actual expenses—often the better, though more complicated choice—can look forward to a bit more this year. The per-mile allowance, regularly adjusted to reflect changes in gas and operating costs, rises to 50½ cents for 2008, up two cents from 2007.