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New Recordkeeping Requirements for Charity
Starting in 2007, taxpayers must keep receipts and other records for charitable donation. Receipts are required for all donations, whether of cash or property, and regardless of the amount or value of goods donated. Acceptable records would include canceled checks, a bank or credit card statement showing the name of the charity along with the amount and date of the donation, or a written acknowledgment letter from the charity.

Also, donated property must be in good condition or better. This applies not just to cars and vehicles, but to clothes and household items as well. Additionally, you must keep records indicating what you donated and the value.

Mortgage Insurance Payments May Be Deductible
Many homeowners get saddled with paying mortgage insurance premiums if they don't have enough of a down payment. Mortgage insurance premiums are now deductible as part of the mortgage interest deduction, but for four years only. This deduction begins at the start of 2007 and expires at the end of 2010. Mortgage insurance provided by the Veterans Administration, the Federal Housing Administration, the Rural Housing Administration, and private mortgage insurance companies all qualify for the deduction. Only amounts paid on mortgage insurance contracts issued after 2006 qualify.  

Expanded Kiddie Tax
Children under age 18 who have investment income greater than $1,700 may be subject to tax based on their parents’ income. Since “kiddie tax” is computed by adding the child’s investment income to the income of the parents, it is possible that the child’s income will be taxed at a rate higher than that of the parents. Beginning in 2008, the “kiddie tax” is expanded to include children age 18, or who are full-time students age 19-23, if their earned income is less than or equal to half of the amount of their support.

Expiring Tax Benefits
Tax laws often impose timelines during which a particular deduction or credit can be claimed. The following tax breaks are scheduled to expire at the end of 2007:

• Classroom expenses deduction
• Tuition and fees deduction
• Deduction for mortgage insurance premiums
• Excluding charitable IRA distributions from income
• Itemized deduction for sales taxes
• Nonbusiness energy tax credit
• Election to include non-combat pay for the purposes of calculating the Earned Income Credit

Change in Adoption Benefits
Adoption credit. Beginning in 2007, the credit allowed for an adoption of a child with special needs is $11,390 and the maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $11,390. The credit begins to phase out if you have modified adjusted gross income of $170,820 or more and is completely phased out if you have modified adjusted gross income of $210,820 or more.

Adoption assistance program. Beginning in 2007, you may be able to exclude up to $11,390 from your gross income for qualified adoption expenses paid or incurred by your employer under a qualified adoption assistance program in connection with your adoption of an eligible child. This income exclusion starts to phase out if your modified adjusted gross income is $170,820 or more and is completely phased out if your modified adjusted gross income is $210,820 or more.

Credit for Prior Year Minimum Tax
If you have any unused minimum tax credit carryforward from 2003 or earlier years, your minimum tax credit allowable for 2007 is not less than the "AMT refundable credit amount." In addition, a portion of the credit may be refundable in 2007. That means, if the refundable part of the credit is more than your tax, you can get a refund of the difference.

Federal Energy Tax Incentives
The Energy Tax Incentives Act of 2005 included many incentives intended to reward both energy production and conservation. While several of the provisions apply to only narrow groups, some will benefit many taxpayers, including homeowners.

Beginning in 2006 and through 2007, you may be able to take a residential energy credit for the costs of having qualified energy saving items installed in your main home (such as insulation, replacement windows, and certain high efficiency heating and cooling equipment). The credit is subject to a lifetime limitation of $500 and no more than $200 of the credit can be used toward the purchase of energy efficient windows. For more information about this credit, click here.

There is also a tax credit available for 2006 and 2007 to help individual taxpayers pay for residential alternative energy equipment. The credit is 30 percent of the cost of eligible solar water heaters, solar electricity equipment, and fuel cell plants. The maximum credit is $2,000 per year for each category of solar equipment, and $500 for each half kilowatt of capacity of fuel cell plants installed per tax year. .

IRS Phishing Scams
Identity thieves are using bogus IRS e-mails and fake IRS correspondence to lure unsuspecting taxpayers into revealing personal information, such as bank and credit card account numbers. 

Keep in mind that the IRS never asks taxpayers for PIN numbers, passwords, or other confidential account information.  Any suspicious e-mail claiming to be from the IRS and requesting this information should be forwarded to the IRS at phishing@irs.gov.

Iowa Tax Credit for Contributions to School Tuition Organization Tax Credit Contribution
A school tuition organization tax credit is available for individual income tax equal to 65% of the amount of a voluntary cash contribution made by a taxpayer to a school tuition organization. The contribution cannot be used for the direct benefit of any dependent of the taxpayer or any other student designed by the taxpayer.

A school tuition organization must be a charitable organization in Iowa that allocates at least 90% of its annual revenue in tuition grants for children who reside in Iowa to allow them to attend a qualified school of their parents' choice. The school tuition organization must represent more than one school, and they can only provide tuition grants to eligible students who are members of households whose annual income does not exceed an amount equal to three times the most recently published federal poverty guidelines published by the U.S. Department of Health and Human Services.

The Iowa Department of Revenue will authorize school tuition organizations to issue tax credit certificates for the following tax year. The total of tax credit certificates to be authorized is $2.5 million for the 2006 year only and $5.0 million for 2007 and subsequent years. The organization will then issue tax credit certificates to the persons that made a contribution to the organization, and the certificate must be attached to the tax return to claim the credit.

Iowa Tax Credit for Philanthropists
The Endow Iowa Tax Credit is equal to 20% of a taxpayer’s endowment gift to a qualified community foundation. The gift must be for a permanent endowment fund established to benefit a charitable cause in Iowa. Any tax credit in excess of the taxpayer’s tax liability can be carried forward for the following five years or until depleted, whichever occurs first.

An individual can claim the credit for a gift made by a partnership, limited liability company, S corporation, estate, or trust electing to have the income taxed to the individual, based on the pro rata share of earnings from the pass-through entity.

Iowa Credit for Agricultural Assets Transferred to Beginning Farmers
Effective for the 2007 tax year, a tax credit for agricultural asset transfers from a taxpayer to a beginning farmer is available for individual and corporate income taxpayers.  The credit is only allowed for agricultural assets that are subject to a lease or rental agreement.  The lease must be for a term of at least two years, but not more than five years.  The taxpayer must meet certain qualifications as established by rules adopted by the Iowa Agricultural Development Authority.  The beginning farmer must be eligible for receive financial assistance as defined by Code.

The tax credit is based upon the gross amount paid to the taxpayer under the lease agreement by the beginning farmer, and is equal to: five percent of the amount paid to the taxpayer, or fifteen percent of the amount paid to the taxpayer from crops or animals sold under an agreement in which the payment is exclusively made from the sale of crops or animals. 

A tax credit certificate, which is issued by the Iowa Agricultural Development Authority, must be attached to the taxpayer’s tax return for the year in which it is used.  For more information click here.