Client Newsletters

Key 2008 Exemptions and Deductions

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

Tax Saving Moves for 2008

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 tax 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 $85,000 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 retention and distribution rules are met.

Deduct Bonus Depreciation. For businesses in 2008 there is a 50% first-year bonus deprecation 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 calendar 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.

2008 Tax Rates

2008 Housing Assistance Tax Act

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 10% 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 out 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 for 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.

More Tax Law Changes 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 tax 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.