2008 will bring about a number of new tax laws as well as changes in existing laws that are indexed for inflation. Some of the major changes that impact expatriates are as follows.

 

 

The foreign earned income exclusion will increase from $85,700 in 2007 to $87,600 in 2008.

 

 

The base amount of the foreign housing exclusion will increase from $13,712 in 2007 to $14,016 in 2008. Thus, if the maximum amount of allowable housing costs remains at $72,000 for Bermuda in 2008, this will result in a decrease of $304 in the amount of excludable foreign housing cost in 2008.

 

 

In late December Congress finally passed a bill to keep millions of additional taxpayers from being subject to the Alternative Minimum Tax in 2007 by increasing the exemptions to $66,250 for married filing joint returns and to $44,350 for single individuals. But this relief only applies to 2007. It is expected that Congress will not again address the 2008 problem until after the November 2008 election.

 

 

Personal exemptions will increase from $3,400 in 2007 to $3,500 in 2008. And while personal exemptions are still being phased out, in 2008 the maximum disallowance for a wealthy individual will be $1,167.

 

The standard deduction is 2008 for married individuals filing jointly will be $10,900 and for single filers will be $5,450.

 

 

Itemized deductions continue to be phased out, but in 2008 the amount will be 1% of income over $159,950 and not more than 80% of itemized deduction can be disallowed.

 

 

The so called “kiddie tax” will be applicable to young adults in 2008. For 2007 dependents will not pay tax on the first $850 of investment income they receive and will pay tax at their own tax rate on the next $850 of investment income they receive. Investment income in excess of $1,700 is taxed at the parent’s tax rate.

 

For 2008 the $850 amounts increase to $900 each, but dependents are now defined as individuals under age 19 and full time students under age 24.

 

 

For individual s with a modest amount of income who is in the 10% or 15% tax bracket, the tax rate on long term capital gains in 2008 will be zero.

 

 

If you are using your car for business you can deduct $.505 a mile in 2008, $.19 a mile for medical travel and moving, and $.14 a mile for charitable work.

 

 

There is a misconception that an individual receiving a gift is subject to paying a “gift tax” on the gift. The gift tax is applicable to the person giving the gift, not the recipient.

 

For 2008 an individual can give a gift of up to $12,000 to a person without incurring a gift tax. And the $12,000 is not an annual limit, it is a per person limit. Thus, if the individual has 3 children, they can give each child $12,000. And if the person is married and the spouse consents, each child can receive a $24,000 gift without the parents being subject to gift tax.

 

Another misconception is that if the gift to a person is $20,000, than the gift giver has to pay a tax on $8,000. This is not true. In addition to the $12,000 annual exclusion, every gift giver also has a lifetime exclusion of $1,000,000. So the $8,000 in excess of the annual $12,000 exclusion can be used against the $1,000,000 lifetime exclusion and no gift tax would be due on the $20,000 gift.

 

 

Under the category of what is the value to an individual of free tax return preparation, the answer is now an IRS audit. Many lower income individuals go to volunteer tax preparation clinics to have their tax returns prepared by volunteers, for free. The Treasury recently sampled a batch of this type of tax returns and found a 56% error rate. The result will be a much closer scrutiny by the IRS of returns prepared for free by volunteers.