NEW TAX LAWS

First Time Home Buyer’s Credit

If you are a first time homebuyer of a principal residence any time from April 9, 2009 through June 30, 2009, you may be entitled to claim a refundable tax credit of 10% of the purchase price of a principal residence, with the maximum credit set at $7,500. This isn’t actually a credit, but a long-term no-interest loan. It is paid back over the next 15 years at a $500/yr. tax increase on that year’s return.

Additional Standard Deduction For Property Taxes

For 2008 only, individuals who claim the standard deduction can claim an additional standard deduction amount of up to $500 ($1,000 for joint return filers) to the extent they pay real estate taxes that would be deductible if they itemized their deductions.

Zero Percent Capital Gains

Starting in 2008, capital gains and qualified dividends are tax-free to the extent that your income would be taxed in 10% or 15% tax brackets if it were ordinary income. If you have capital gains or qualified dividend income and your taxable income does not exceed the top of the 15% tax bracket threshold, every dollar that you reduce your ordinary income lets you get a dollar of tax-free capital gain or qualified dividend.

Modified Kiddie Tax

The age ceiling for imposing the kiddie tax has risen in 2008 from age 17 to as high as 23 for full-time students. KEY: if you children are subject to the kiddie tax, your income level determines whether they qualify for 0% capital gains on investment income above $1,800

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2008 UPDATES

Standard Deductions:

• Married Filing Joint/Surviving Spouse $10,900
• Head of Household $8,000
• Single $5,450

Personal Exemption:
$3,500 per taxpayer, spouse and dependent.
AGI Phase-out begins at:
$239,950 for Married Filing Joint/Surviving Spouse
$199,950 for Head of Household
$159,950 for Single
$119,975 for Married Filing Separate

Mileage Rates:

Due to rising gas prices, the mileage rate will increase by eight cents to 58.5 cents a mile for all business miles driven from July 1 through December 31, 2008. The new rate for computing deductible medical or moving expenses will also increase by eight cents to 27 cents a mile.

Purpose	Rates 1/1 through 6/30/08	Rates 7/1 through 12/31/08
Business	50.5¢	58.5¢
Medical/Moving	19¢	27¢
Charitable	14¢	14¢

Retirement Plan Contribution Limits
Roth IRAs and Traditional IRAs- $5,000 for individuals under age 50 or $6,000 if you are over 50
401(k), 403(b), or 457 - $16,500
SIMPLE- $11,500
SEP- the smaller of 25% of an eligible employee’s compensation or $49,000

Charitable Contributions
Due to the Pension Protection Act of 2006, the rules on recordkeeping for charitable contributions became a little more strict, beginning in January 2007.
To deduct a charitable cash donation, regardless of the amount, you must now have either a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Acceptable bank records would include canceled checks or bank statements. Contributions must be made to a qualified organization, and donations such as clothing and household items must be in good condition. Vehicle donations are subject to special rules.
As in the past, charitable contributions are deductible only if you itemize deductions on Schedule A of your 1040 tax return.

Health Savings Account (HSA)
Beginning in 2007, you can fund your HSA by making a one-time direct transfer from your IRA to your HSA. The maximum deductible contribution is no longer limited to the annual deductible under the high deductible health plan.

Annual Exclusion for Gifts
The first $12,000 of gifts to any person (other than gifts of future interests in property) is not included in the total amount of taxable gifts made during the year.

The following credits and deductions have been extended through the 2008 tax year:

• Tuition deduction
• Teacher deduction
• Medical savings accounts
• State and local sales tax deduction
• Election to include excluded combat pay as earned income for purposes of the EITC
• Work Opportunity Tax and Welfare-to-Work credits (with changes)
• Research credit
• New Markets Tax credit
• Energy deductions and credits
• Depreciable life of fifteen years for qualified leasehold improvements and restaurant property
• Taxable income limit for percentage depletion of oil and natural gas produced from marginal properties
• Corporation donation of scientific property used for research and of computer technology and equipment

Mileage Logs — Just a reminder to go out and check your odometer at the beginning of the year so you can update your written mileage log. Of course, your log is probably written and has the beginning mileage on the vehicle for the year as well as the ending mileage and shows the actual miles driven for each business use... We thought so! The IRS is getting picky so we all need to get more diligent in our documentation. A&E also has mileage logs in the office if you would like to pick one up.

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