Cheat on Your Taxes and Ace April 15

Rumor has it that you haven't done your homework -- you know, poring over all 67,000 pages of the tax code, highlighting relevant passages and clever turns of phrase. C'mon … what else was there to do these past months when there was nothing but reruns on TV anyways?

Just joshin'. No worries if you haven't been glued to the IRS website hanging on Uncle Sam's every tax law update. Some of us have (before Lost came back on the air, that is), and I'm happy to let you cheat off my homework.

Here's a rundown of 2007's big tax law changes you'll need to know to get all the answers right on your return.

Tax deductions

Inching up a tax bracket isn't something you brag about come April. So dress down your income for the IRS by offseting it with deductions.

Standard deduction: It went up! It's now $5,350 for singles and married individuals filing separately; $7,850 for heads of household; and $10,700 for married couples filing jointly.

IRA deduction: The maximum IRA contribution allowed per person did not change in 2007, and for that we shed a tear. It's still $4,000, or $5,000 if you are 50 or older (thankfully, the limit jumps an extra $1,000 in 2008).

The ship has not left dock, folks -- you're still eligible to make that IRA contribution for 2007 through April 15. Now you just have to decide when to take your tax break. If you're not covered by a retirement plan at work, a contribution to a traditional IRA is fully deductible; the same goes if you are covered by an employer plan and your adjusted gross income (AGI) is less than $53,000 for single taxpayers or less than $85,000 for married taxpayers who file jointly. The amount you can deduct gradually declines to zero as your AGI approaches $65,000 (single) and $105,000 (married, filing jointly). Any money contributed to a traditional IRA will be taxed as ordinary income when withdrawn.

With a Roth IRA, you don't get a deduction today, but withdrawals are tax-free if you follow the rules. However, if your AGI is in the range of $99,000 to $114,000 (singles) or $156,000 to $166,000 (married), your eligibility to contribute to a Roth IRA for 2007 decreases gradually to zero.

Charitable deductions: The rules for the magnanimous tightened in 2007. Forget about claiming a deduction for crummy clothes and rusty kitchen appliances -- only items in good condition qualify. You'll also need written acknowledgement (or a receipt) for all cash donations (no matter how small) and donations of property worth $250 or more.

Mileage deductions: Get a little bit back for your pain at the gas pump. The standard mileage rate deduction for 2007 remains at $0.14 per mile for charitable use. If you used a vehicle for business, the rate is $0.485 per mile, and it's $0.20 per mile for deductible medical travel or relocation.

Tax credits

It's not all bad news if your furnace conked out last year, especially if you replaced it (or other energy hogs) with an energy-efficient one. The IRS would like to commend your eco-consciousness with a tax credit of up to $500. (Unfortunately, at the end of 2006, the IRS pulled the plug on credits for electric vehicles. Still, we commend your greenness.)

Residential energy credit: If you installed energy-saving items (a new air conditioner, furnace, windows, doors, or insulation), take advantage of this credit -- available from 2006 through 2007 -- and see if your purchases qualify at energystar.gov and energytaxincentives.org. It's subject to a $500 lifetime limitation, and up to $200 of the credit can be used toward the purchase of energy-efficient windows. If you hopped aboard the alternative-energy wagon and went solar (e.g., a water heater or electricity equipment), you could be eligible for a maximum credit of $2,000 per tax year for each category.

Retirement savings contribution credit: If your modified AGI is not more than $52,000 if you're married and file jointly; $39,000 for heads of household; or $26,000 for singles, married filing separately, or widow(er)s; you may be eligible to get a dollar-for-dollar credit for 10% to 50% of contributions toward retirement (from 401(k)s to IRAs to SEPs) using IRS Form 8880.

Foreign tax credit: If you hold foreign securities that pay dividends (and tax you on them) in a taxable account, see Form 1116 for directions on claiming this credit. You should be notified with a 1099DIV or 1099INT form if you qualify.

Exemptions

Are you or aren't you? That's the question on a lot of taxpayers' minds in regards to the alternative minimum tax (AMT). The IRS's AMT Assistant will help you determine if you're subject to the AMT. Here are 2007's other exemptions:

Personal exemption: Increased to $3,400 per person.

AMT exemption: Increased to $44,350 for singles; $66,250 for married couples filing jointly or a qualified widow(er); and $33,125 for married individuals filing separately.

Finally, if you're pining for more detail -- for example, the new laws on capital asset treatment for self-created musical works -- here's that IRS website link once again.

Dayana Yochim's favorite homeopathic sleep aid is the IRS's Tax Code. She and her cohorts at The Motley Fool (www.Fool.com) offer tax tips (with subtitles!) year round.