You know the saying "If it ain't broke, don't fix it"? Well, that seems to be the mantra for 2007. From Hollywood to the tax world, it's all about making small changes but more or less keeping the things we already love. That's probably why actors Jackie Chan and Chris Tucker will come together again in Rush Hour 3 and Bruce Willis will star in Live Free or Die Hard. Both movies are set to hit the theaters in 2007. Even Las Vegas is going with the tried and true. Monty Python's hit musical Spamalot is going from Broadway to the Sin City strip. The tax world also is keeping big things the same. Thanks to the Tax Relief and Health Care Act of 2006 passed by President Bush last month, the sales tax deduction, the college tuition and fees credit and the teacher's $250 deduction were all extended for 2007. So
save your receipts and documentation. But of course, the folks in D.C. found a few things that they decided were "broke" and needed to be fixed. So like it or not, a few new tax laws have surfaced for 2007.
Get a Receipt from SantaThe biggest inconvenience will be on the charitable contribution front. Starting with your 2007 bill, you will need a receipt for every cash contribution you make. No amount is too small, according to the tax folks. So whether you donate $500 or 5 cents, if you don't have documentation, you can't deduct it.
And your own personal log isn't good enough anymore, says Mark Luscombe, a principal federal tax analyst with CCH, a provider of tax and business law information. (Translation: Your word means nothing to the IRS.) You now need some type of bank record confirming the contribution. And that could be anything like a canceled check, a bank statement or a credit card statement showing the name of the charity and the transaction's posting date. A written communication from the charity with the organization's name, the date of the transaction and the amount of the contribution would work too. You just need something. That goes for any donation made in cash, by check, by electronic funds transfer, on a credit card or through your payroll deductions. (For payroll deductions, save your W-2 wage statement showing the amount withheld for charity, along with the pledge card showing the name of the charity.) So now, if you give $5 to the Salvation Army Santa on the street, you'd better ask for a receipt if you want to deduct it. Don't just throw money in the church basket anymore either. Make sure you use your designated envelopes, says Luscombe. That way the church can keep track of your donations, and you can use their paperwork as documentation.
A New DeductionOn a happier note, your private mortgage insurance is now deductible.
When you put less than 20% down on the home you're purchasing, you're usually required to get PMI to safeguard the bank that's loaning you the money. PMI is usually 0.5% of your loan balance each year, and it's usually paid monthly. Starting in 2007, you can deduct that insurance amount along with your mortgage interest on Schedule A, says Harris Abrams, a tax analyst Thomson Tax & Accounting. The PMI deduction phases out when the adjusted gross income of a married couple filing jointly hits $100,000, and then disappears when AGI hits $109,000. But still, for those who needed the insurance to get the mortgage in the first place, the deduction is a nice perk.