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Get A Head Start On Tax Planning For 2008

It's still a month until most of us will file our 2007 tax returns, but it's a good idea to keep in mind key tax changes that will affect our 2008 returns. Here are some of the highlights:

Wider tax brackets: In one of the rare cases in life where inflation looks like a good thing, all tax-bracket thresholds will be increasing. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $65,100, up from $63,700 in 2007.

Personal exemption: The personal exemption – which you're allowed to claim for yourself and each dependent you have -- will go up $100 to $3,500 for 2008.

Standard deduction: Single filers will see this deduction increase $100 from 2007 levels to $5,450. Married couples filing jointly will see their standard deduction rise to $10,950, $200 more, and the amount for heads of households who don't itemize will be $8,000, up $150. For married taxpayers age 65 and older, they'll be allowed to add $1,050 to the regular standard deduction – unchanged from 2007, and singles will get an extra $1,350 compared to $1,300 in tax year 2007.

Phase-out of itemized deductions: Taxpayers will start to see the value of their itemized deductions go down after their taxable income exceeds $159,950 in 2008. That's $3,550 higher than in 2007.

Retirement plan contributions: The contribution amount allowed for Roth IRAs begins to phase out for joint filers with incomes exceeding $159,000 (up from $156,000 in 2007) and $101,000 (up from $99,000) for singles and heads of household. For contributions to a traditional IRA, the deduction phase-out range for an individual covered by a retirement plan at work begins at income of $85,000 for joint filers (up from $83,000) and $53,000 for a single person or head of household (up from $52,000). The annual contribution limit for most defined contribution plans rises to $46,000, up from $45,000 in 2007.

Hope education credit: The maximum Hope credit, available for the first two years of post-secondary education, is $1,800, up from $1,650 in 2007.

Energy breaks: The federal government extended its credit on 30 percent of qualified solar generators for residential use.

The Kiddie Tax: The amount of investment income a child under age 19 -- or a full-time student under 24 -- can earn before excess earnings are taxed at his or her parents' rate will go up $100 to $1,800 in 2008.

Tax-free parking and transit passes:Employers will be allowed to give employees parking valued at $220 a month as a tax-free fringe benefit in 2008, up $5 from 2007.

March 2008 – This column was authored in cooperation with Financial Planning Association.

This material is for informational purposes only and is not intended to provide specific advice or recommendations to any individual or group. Before making any financial decisions or commitments, please consult with your financial professional.

Securities offered through LPL Financial, Member FINRA/SIPC.