Archive for the ‘2008 Tax Information’ Category

Tax credit for 2008 only for people who did not receive the economic stimulus

Saturday, December 27th, 2008

The recovery rebate credit is a special federal tax credit for 2008 only. The credit is available for individuals who did not apply for the economic stimulate rebate in 2007. The recovery rebate credit is also available for people who’s rebate is higher when calculated using their 2008 financial information.

First Time Home Owners:

There’s a new, refundable tax credit of up to $7,500 for purchasing a primary residence. The credit is available to first-time homebuyers. The credit is available for homes purchased after April 9, 2008, and before July 1, 2009. And the credit will need to be repaid in equal installments over 15 years.

Additional Standard Deduction for Property Taxes

Homeowners can claim an additional standard deduction for property tax if they do not itemize. The additional amount is limited to $500 or $1,000 for joint filers. The amount is claimed as an additional amount on top of their standard deduction. The deduction is valid for the 2008 tax year only.

Boost Your Tax Deductions

1. Make an extra mortgage payment. The extra interest you pay will be added to this year’s mortgage interest by your lender, boosting your itemized deductions. You may want to confirm with your lender that your payment will be credited as paid in the current year.

2. Pay your property taxes. Real estate taxes are tax deductible. If your property tax bill is due early next year, you might want to pay it now and take the deduction.

3. Donate to charity. It pays to be charitable, especially at the end of the year. Donating cash is always a good idea. You can also donate household goods, clothing, and other items. Under the Pension Protection Act, you will need a written receipt for all charitable donations, and donated items must be in good or better condition. You can also deduct the cost of driving for charity at 14 cents per mile. You cannot take a deduction, however, for the value of your time or services when volunteering.

4. Pay doctor bills, insurance premiums, buy eyeglasses, or stock up on prescription medications. You can take a deduction for medical expenses exceeding 7.5% of your adjusted gross income.

5. Boost business expenses. Business owners and independent contractors can buy office supplies, invest in new equipment, or pay bonuses to their employees. They should also review their retirement plans or decide about setting up a retirement plan. Many retirement plans need to be established by the end of the year if owners want to make tax-deductible contributions for the year. You will want to review what constitutes a legitimate business expense just to make sure it will be tax-deductible.

6. Organize your financial records. Good record-keeping can really pay off at tax time. Not only will it make your tax preparation easier and faster, but you might uncover enough tax deductions to be able to itemize. More importantly, the IRS will require receipts and other records in the event of an audit. Entrepreneurs should be using accounting software such as Peachtree, QuickBooks, or Microsoft Office Accounting to ensure that all their income and expenses are recorded properly. Individual taxpayers may want to use Microsoft Money or Intuit’s Quicken to keep track of their personal spending. As an added bonus, these programs provide reports that summarize your tax deductions for faster tax preparation.

Manage Your Investments

7. Sell losing investments to offset capital gains,  Investors can lower their capital gains taxes by selling securities that have lost money. Losses offset gains dollar for dollar, and losses in excess of your gains can be deducted, up to $3,000 per year.

8. Wait to invest until after the ex-dividend date. Avoid buying mutual funds held in taxable accounts until after their ex-dividend date. You’ll avoid paying capital gains tax on the dividend.

9. Max out your retirement savings. Contributions to a retirement plan reduce your taxable income.

Tax Strategies Beyond Form 1040

10. Make the most of your Flexible Spending Account.

You should use up any funds in your Flexible Spending Accounts, or risk losing that money forever. Use your FSA funds to buy eyeglasses, medications, or get a checkup.

Key 2008 Exemptions and Deductions

Saturday, December 27th, 2008

Listed here for your reference are key deduction rates for 2008.

Personal Exemptions

The personal exemption for each qualifying dependent increases by $100 for 2008.

  2008 2007
Exemption $3,500 $3,400

 

The exemption phases out by 2% for each $2,500 ($1,250 for married filing separately) by which your income is over:

  2008 Phase Out
Single $159,950
Married Filing Separately $119,975
Married Filing Jointly $239,950
Head of Household $199,950

2008 Alert: This phaseout amount is now reduced by 2/3rds in 2008.

Standard Deductions

Standard deductions for those who do not itemize are as follows:

  2008 2007
Single $5,450 $5,350
Married Filing Separately $5,450 $5,350
Married Filing Joint $10,900 $10,700
Head of Household $8,000 $7,850

 

If 65 or over and/or blind add:

  2008 2007
Single/Head of Household $1,300 $1,250
Married/Surviving Spouse $1,050 $1,000

 

Itemized Deduction Phaseout

Deductions are reduced by 3% of every dollar of Adjusted Gross Income (AGI) over $156,400 ($78,200 if married filing separately) up to a maximum phaseout of 80% of your itemized deductions. Your medical expenses, investment interest, casualty losses and gambling losses are excluded. 2007 Alert: The phaseout amount noted above is now reduced by 1/3 in 2007.

Standard Mileage Rates

The standard mileage rates for 2007 are:

Mileage 1/6-6/30 7/1-12/31
Business Travel $0.505 $0.585
Medical/Moving $0.19 $0.27
Charitable Work $0.14 $0.14

2008 Tax Rates

Saturday, December 27th, 2008

The income brackets for each tax rate are:

Single Married Jointly Head of Household Tax Rate
$1 $1 $1 10%
$8,026 $16,051 $11,451 15%
$32,551 $65,101 $43,651 25%
$78,851 $131,451 $112,651 28%
$164,551 $200,301 $182,401 33%
$357,700+ $357,700+ $357,700+ 35%

More Tax Law Changes

Saturday, December 27th, 2008

In addition to pre-programmed changes in dollar limits, here are five noteworthy new tax laws:

Recovery Rebate Credit. This new credit allows clients to claim a refundable credit based on the economic stimulus check rules using 2008 information. If you did not qualify to receive the stimulus payment last year or you did not receive the full amount you could be eligible.

Kiddie Tax Expands. 2008 marks the first year to apply the kiddie tax rules to children under 19 (24 if a qualified student). This is up from age 14 prior to 2006. This law applies the parent’s tax rate to a child’s excess unearned (investment) income over $1,800 in 2008.

Widows Receive Higher Home-sale Gain Exclusion. After 2007 a surviving spouse may be able to use the full $500,000 capital gain exclusion (formerly $250,000) when they sell their principal residence for up to two years after the death of their spouse.

Emergency Responder Benefit. From 2008 to 2010 qualified emergency responders can omit certain state or local government benefits from their income. This includes up to$30 per month in qualified payments and rebates or reductions of property or income taxes for providing services.

Transportation Worker Meal Expense Limits Increase. Workers subject to the Dept. of Transportation hours of service rules can now deduct 80% of business meals. This applies to certain: air transportation workers, interstate truck drivers, interstate bus drivers, railroad workers, and merchant mariners.

2008 Housing Assistance Tax Act

Saturday, December 27th, 2008

Congress’ action to help the slumping housing market may mean more money in your pocket.  Two provisions of the new $15 billion tax bill are of major interest.

First Time Home Buyer Credit

First-time home buyers purchasing a home after 4/9/08 and before 7/1/09 may receive a tax credit equal to 0% of the purchase price of a home that serves as your principal residence. The credit is up to $7,500 $3,750 for married filing separate). However, there are a few catches:

  • The credit phases our with income – between $150,000 and $170,000 married filers; $75,000 – 95,000 single filers
  • The credit must be repaid in equal installments over 15 years commencing two years after the home is purchased
  • If the home is no longer your primary residence the balance of the credit must be repaid in that tax year
  • The credit is paid through your tax return, so it will not help your cash flow when you close on your new home

Non-Itemizer

Property Tax Deduction

Homeowners who use the standard deduction versus itemized deductions could see their Standard deduction amount increase in 2008. This special one year provision allows
you to increase your standard deduction by the lesser of the amount of real property taxes paid OR $1,000 or a married couple ($500 if not married).

This benefit will help homeowners who have very little in itemized deductions (like seniors who have little in deductible interest expense because they have paid off their mortgages). This means the standard deductions for 2008 move from $10,900 for joint filers to $11 ,900 and from $5,450 to $5,950 for single filers that use this new tax law.

Tax Saving Moves for 2008

Saturday, December 27th, 2008

Tax Saving Moves for Individuals

Take Tax Free Capital Gains. Effective January 1, 2008 a 0% federal income tax rate on long-term capital gains and qualified dividends takes effect. If you have some appreciated stocks you have held for more than one year it may be a good time to sell and realize tas free capital gains. A new Administration and Congress in Washington could close this window of opportunity. This special rate applies to gains and dividends that are received by clients in the 10% or 15% regular income tax brackets. But even if your income is too high to personally cash in on the 0% rate, through gifting, you may have children, grandchildren, or other loved ones who might qualify.

Make an IRA Contribution. The 2008 Individual Retirement Account (IRA) contribution limit is $5,000 ($6,000, if age 50 or over). This is a nice way to defer income from tax and save for your retirement. You can make your contributions through April 15, 2009. Clients can even file early and use their tax refund to maximize their IRA contributions.

Manage Income for Full IRA Benefits. You can take the full IRA contribution deduction if your income is below $85,000 (married filing jointly) or $53,000 if you are single or head of household. Partial tax deductions are available if your income is between $85,0000 and $105,000 (married filing jointly) or $53,000 and $73,000 (single or head of household).

Make a Roth IRA Contribution. Depending on your income you may be eligible to make a Roth IRA contribution in 2008. The new inflation adjusted income phase-out ranges are between $159,000 and $169,000 for joint filers and $101,000 and $116,000 for singles. While your contributions must be made after tax, the earnings grow tax-free as long as long as retention and distribution rules are met.

Tax Saving Moves for Businesses

Deduct Bonus Depreciation. For business in 2008, there is a 50% first-year bonus depreciation deduction. Under this new first-year bonus depreciation provision, your business can immediately deduct half of the cost of a qualifying new asset if it is purchased and placed in service during callendar 2008.

Hint: An asset eligible for the 50% first-year bonus depreciation must be new (not used) and placed in use after December 31, 2007.

Take a Section 179 Deduction. Once again in 2008 businesses may elect to expense the purchase of qualified assets versus using depreciation. This Section 179 election may be made for up to $250,000 in purchases. Some limitations apply.