Tax Info - 2008

CCH Projects Inflation-Adjusted Tax Brackets and Other Amounts for 2008

As a service to our subscribers, CCH Tax & Accounting has prepared projected inflation-adjusted tax brackets for the 2008 Tax Rate Schedules, standard deduction amounts and personal exemption amounts for use in year-end and 2008 tax planning. The projected figures are based on the inflation-adjustment provisions of the Internal Revenue Code (IRC) as currently in force and the average of the Consumer Price Index for All Urban Consumers (CPI-U) published by the Department of Labor for each month in the 12-month period ending on August 31, 2007. Official IRS figures will not be released until later in 2007.

Tax Brackets

Joint returns. For married taxpayers filing jointly and surviving spouses, the maximum taxable income subject to the 10-percent bracket will rise from $15,600 in 2007 to $16,050 in 2008; the top of the 15-percent tax bracket will increase from $63,700 to $65,100. The bracket amounts for the remaining tax rates show similarly proportionate increases: $131,450 as the maximum for the 25-percent bracket (up $2,950 from 2007); $200,300 for the 28-percent bracket (up $4,450 from 2007); and $357,700 for the 33-percent bracket (up $8,000 from 2007). Amounts above the $357,700 level will be taxed at the 35 percent rate.

Unmarried filers. For single taxpayers, the maximum taxable income for the 10-percent bracket will increase to $8,025 for 2008 (up from $7,825 in 2007). The remainder of the rate brackets show inflation increases of: $700 for the top of the 15-percent bracket (to $32,550); $1,750 for the 25-percent bracket (to $78,850); $3,700 for the 28-percent bracket (to $164,550); and $8,000 for the top of the 33-percent bracket (to $357,700).

Married filing separately. Married taxpayers filing separately will see a $200 increase for the upper range of the 10-percent bracket (to $8,025) and a $700 increase for the 15-percent bracket (to $32,550). The top of the 25-percent bracket will increase by $1,475 (to $65,725); the 28-percent bracket will increase by $2,225 (to $100,150); and the 33-percent bracket will increase by $4,000 (to $178,850).

Heads of household. For heads of households, the maximum taxable income for the 10-percent bracket will rise to $11,450 (from $11,200). The top of the remainder of the bracket amounts will also increase: up $1,000 from 2007 for the 15-percent bracket, to $43,650; up $2,550 from 2007 for the 25-percent bracket, to $112,650; up $4,050 from 2007 for the 28-percent bracket, to $182,400; and up $8,000 from 2007 for the 33-percent bracket, to $357,700.

Estates and trusts. For estates and nongrantor trusts, the maximum taxable income for the 15-percent bracket will increase by $50 over the 2007 level, to $2,200 (there is no 10-percent bracket for these taxpayers). For the 25-percent bracket, the maximum for the bracket will be $5,150 (up $150 from 2007); for the 28-percent bracket, $7,850 (up $200 from 2007); and for the 33-percent bracket, $10,700 (up $250 from 2007).

Standard Deduction

The 2008 standard deduction will rise by $100, to $5,450, for single taxpayers; by $150, to $8,000, for heads of households; by $200, to $10,900, for married taxpayers filing jointly and surviving spouses; and by $100, to $5,450, for married taxpayers filing separately. The standard deduction for dependents will remain at $900 (or earned income plus $300).

Personal Exemptions

The amount of personal and dependency exemptions for 2008 will increase from the 2007 level by $100 to $3,500.

Gift Tax

The gift tax annual exemption, which rose from a base of $10,000 to $11,000 in 2002 and to $12,000 in 2006, will remain at the $12,000 level for 2008. Pursuant to the IRC, the exemption can rise only when the inflation adjustment produces an increase of $1,000 or more.

Personal Exemption, Itemized Deduction

Personal exemption phaseout. The 2008 personal exemption phaseout for married taxpayers filing jointly will increase by $5,350 over the 2007 level and will begin at adjusted gross income (AGI) of $239,950; for single taxpayers, the phaseout will increase by $3,550 over the 2007 level, to begin at AGI of $159,950; for heads of households, the increase over 2007 will be $4,450, to begin at AGI of $199,950; and for married taxpayers filing separately, the phaseout will begin at AGI of $119,975, representing an increase of $2,675.

Itemized deductions phaseout. For higher income taxpayers, the amount of their otherwise allowable itemized deductions will be reduced when AGI exceeds a threshold amount. The reduction is equal to the lesser of three percent of AGI over the threshold amount or 80 percent of itemized deductions otherwise allowable. For 2008, the threshold amount at which the three-percent itemized deduction limitation takes effect will increase by $3,550, to AGI of $159,950 for married taxpayers filing jointly, single taxpayers and heads of household, and will increase by $1,775, to AGI of $79,975 for married taxpayers filing separately.

Lesser phaseouts for 2008. New for 2008, the reduction of the inflation-adjusted phaseout of the personal exemption amounts and itemized deductions for taxpayers with adjusted gross income above certain thresholds get larger. Starting in 2008, taxpayers only lose one-third of the amount otherwise required under the phaseouts, down from two-thirds in 2006 and 2007. The amount hits zero in 2009.

New for 2008

The Code Sec. 179 expensing amounts, which were raised for 2007 by the Small Business and Work Opportunity Tax Act of 2007 (P.L. 110-28), will now be raised for inflation in 2008 to $128,000, with the starting phaseout amount also raised to $510,000. The Act raised it retroactively to January 1st for 2007 to $125,000 and $500,000 respectively, from the prior 2007 inflation-adjusted amount of $112,000 and $450,000.

While the kiddie tax inflation adjusted amounts are adjusted for 2008 as before, the Act changed the definition of "kiddies" that are subject to their parent's tax rates. Starting in 2008, the new law includes 18-year-olds, as well as students under 24 who may be claimed as dependents by a parent. The inflation-adjusted amounts themselves also rise independent of the Act, however, under the normal calculations, to $1,800 for 2008, up from $1,700 where it had been since 2006. The kiddie tax standard deduction rises from $850 to $900.

CCH Comment. Two other changes not keyed to automatic inflation adjustments but still very much governed by inflation include the AMT exclusion and the reduced capital gain rate:

--In 2006, the AMT exemption amounts were $42,500 for single individuals and $62,550 for married couples filing jointly. The higher amounts lapsed and are now set for 2007 and again for 2008 at just $33,750 for individuals and $45,000 for married couples filing jointly. Congress, however, is expected to enact another round of temporary relief.

--The net capital gain rate starting in 2008 is scheduled to be lowered to zero for those in the 15-percent income tax bracket, down from five percent in 2007.

Other Tax Figures

In addition to the projected tax figures for 2008 listed above, the IRC requires other adjustments based on the September 2006 through August 2007 CPI amounts. These additional amounts include:

Roth IRAs. The AGI limits for maximum Roth IRA contributions are: married filing jointly, $159,000 (formerly $156,000); other filing statuses, other than married filing jointly or separately, $101,000 (formerly $99,000).

IRAs. The AGI limits for maximum IRA contributions for individuals covered by a retirement plan are: married filing jointly, $85,000; head of household and single, $53,000.

Education savings bond interest exclusion. When U.S. savings bonds are redeemed to pay expenses for higher education, the interest may be excluded from income if the taxpayer's income is below a certain range. For 2007, that phaseout range begins at $67,100 modified AGI ($100,650 for joint returns).

Education credits. The HOPE and Lifetime Learning Credits for 2008 will be phased out for those taxpayers with modified adjusted gross income in 2008 starting at $48,000 ($96,000 for married joint filers). The $1,000 credit amount in 2008 goes up $100 to $1,200.

Adoption expense credit. This $10,000 maximum credit was first subject to an inflation adjustment after 2002. For 2008, the amount will increase to $11,650, with the AGI phaseout beginning at $174,730.

Student loan interest income phaseout. The $2,500 student loan interest deduction phaseout begins at $55,000 AGI for singles in 2008. The phaseout level for joint filers rises to $115,000.

Gifts to noncitizen spouses. The first $128,000 of gifts in 2008 to a spouse who is not a U.S. citizen will not be included in taxable gifts, up $5,000 from 2006.

Foreign gifts. A U.S. person receiving aggregate foreign gifts exceeding $13,560 in 2008 must file an information return.

Transportation fringe benefits. The monthly cap on the exclusion of qualified parking expenses will be $220 in 2008 (up from $215 in 2007). Transit passes/commuter highway vehicle amounts will rise $5 to $115 per month.

Child credit. The refundable child credit earned income threshold will be $12,050 (formerly $11,750).

By Torie Cole, CCH News Staff