Tax Tips by bnd17952


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									        Tax Saving Tips
For Preparing Your 2008 Return

        Advice from CPAs
    Recent Tax Law Changes
•Economic Stimulus Act of 2008
•The Emergency Economic Stabilization
•Tax Extenders
•AMT Relief
Charitable Contribution Changes

   •Distributions from an IRA to a qualifying
   charity to be excluded from the owner’s
   • Limited to $100,000
   • Available for a two year period
   • Must be made after the age of 70 ½
             2008 Energy Act
•The 2008 Energy Act extends credits for
certain energy saving devices and increases
limits on the amounts of credits as well.
•Generous tax credits for solar power,
residential wind property and geothermal heat
•In 2008: 30% of the qualified expenditure up to
a maximum of $2,000.
•In 2009: simply 30% of the qualified
expenditure with no maximum applied.
2008 Economic Stabilization Act
•The 2008 Economic Stabilization Act added
some relief for those who have lost their home
in a foreclosure action.
•Old law: pay income tax on mortgage debt that
was cancelled in a foreclosure action, unless the
taxpayer was bankrupt.
•Under new law, through 2012: no taxable
income if principal residence is foreclosed on.
This is true even if the taxpayer is not bankrupt.
             $500,000 Exclusion
•$500,000 exclusion of gain from the sale of a principal
residence has been liberalized.
•The Economic Stimulus Act changed this rule in case of a
death of a spouse.
•Under the new law, $500,000 exclusion will be allowed if
the sale occurs within two yeas of the death of the spouse.
•After 2009, the law allows heirs, certain trusts or the
estate of an individual whose principal residence is sold to
claim an exclusion in certain circumstances.
     Stimulus Rebate Checks
•Recalculate stimulus rebate based on 2008
•If you received too little of a rebate, you’ll get
another check. If you received too large of a
rebate, you get to keep the difference. In most
cases, however, there should be no difference –
unless you had another child this year.
    Filing Status

•   Married filing jointly
•   Married filing separately
•   Single
•   Head of Household
•   Qualifying widow(er)
2008 Tax Rates

     •   10%
     •   15%
     •   25%
     •   28%
     •   33%
     •   35%
       Standard Deduction
Filing                          Standard
Status                          Deduction

•   Married filing jointly      $10,900
•   Married filing separately   $ 5,150
•   Single                      $ 5,450
•   Head of Household           $ 8,000
•   Qualifying widow(er)        $10,300
   Standard Deduction

Taxpayers 65 and older or blind get an
additional standard deduction

• Married - $1,050
• Single or Head of Household - $1,350
      Itemizing Deductions
• An alternative to the standard deduction
• Use when these deductions exceed standard
• High income taxpayers need to know that their
allowable itemized deductions may be reduced
if Adjusted Gross Income, or AGI, is over
$159,950 for all taxpayers other than married
taxpayers who file separate. Taxpayers who are
married but file separate will be effected at
income of $79,975.
Itemizing Deductions, Continued

The overall limitation on the amount of
itemized deductions has a new cap on it making
the provision less onerous for taxpayers. In
2008 and 2009, the reduction is limited to 1/3 of
the amount calculated under the complex
provisions mentioned above.
        Personal Exemption
Filing Status       Phase-out   Phase-out
                    starts      ends

Joint return        $218,950    $341,450
Head of Household   $182,450    $304,950
Single              $145,950    $268,450
Married filing      $109,475    $170,725
      Timing Strategies

Control tax bill by –
• Deferring income, such as bonuses
• Accelerating deductions, such as
  qualified charitable contributions
• Bunching deductions that are based on
   a percentage of AGI
Tax Strategies for Life

    •   Family
    •   Education
    •   Home
    •   Investments
    •   Retirement
Family Strategies

 •   Child Credit
 •   Dependent Care Credit
 •   Adoption Credit
 •   Earned Income Credit
 •   Shifting Income
                Child Credit
•   Child must be under 17 at year end
•   Child must be claimed as a dependent
•   $1,000 credit per child
•   Reduces tax bill dollar-for-dollar
•   Phase-out for higher income families
     •$110,000 for married, filed jointly
     •$55,000 married, filed separately
     •$75,000 single filers, heads of households
       Adoption Credit

• Credit of up to $11,650 per eligible child
• Exemption for first $11,650
  reimbursed by employer
• Parents adopting special needs
  child get full credit
  Dependent Care Credit

• Child must be under 13 and a dependent
• Tax credit from 20% to 35%
  of qualifying expenses
• Use up to $3,000 of expenses
   ($6,000 for two or more dependents)
   to calculate credit
• Not restricted to children
  Earned Income Credit

Family Size   Maximum Credit

Two or more       $4,824

One child         $2,917

No children       $438
  Shifting Income

• Make gifts to children up to $12,000

• Transfer appreciated stock to children

• Hire your children
  •First $5,350 is not taxed and is a
  business deduction
           Tax Credits

• Hope Credit worth up to $1,800
  per student, per year
• Applies to first two years of college only
• Phase-out applies
      Single -- $48,000 -- $58,000
      Joint --    $96,000 -- $116,000
       Tax Credits

• Lifetime Learning Credit of up to
  $2,000 per year
• Applies to undergraduate, graduate
  and professional courses
• Phase-out applies
     Single -- $48,000 -- $58,000
     Joint --    $96,000 -- $116,000
     Tuition Deduction

•   Deduct up to $4,000
•   No need to itemize
•   No limit on repayment period length
•   $65,000 – phase-out for single filers
•   $130,000 – phase-out for married
       filing jointly
        Student Loan Deduction

•   Deduct up to $2,500
•   No need to itemize
•   No limit on repayment period length
•   $55,000-$70,000 – phase-out for single filers
•   $110,000-$140,000 – phase-out for married
       filing jointly

• Mortgage interest on first and second homes
• Up to $100,000 in home equity loan
     or line of credit interest
• Points paid on mortgage or refinancing
  • The amortized points from a refinanced
     mortgage are fully deductible
• Real estate property taxes
        Selling Your Home

• Exclude up to $250,000 in capital gains
  from sale of home; $500,000 for joint filers
• Must own and use home as principal residence
  for two out of five years
• Eligible only once every two years
• Reduced exclusion available

• Top dividend tax rate of 15%
• Rate is 5% for taxpayers in 10% and
  15% brackets
• Check ex-dividend date
• Does not apply to interest payments
      Capital Gains Tax

• Maximum tax rate on long-term gains is 15%
• 5% for taxpayers in 10% and 15% brackets
• Asset must be held more than one year
Offset Capital Gains with Losses

  • Capital losses offset capital gains
  • $3,000 ($1,500 for single filers) in net
    capital losses can be deducted against
    ordinary income
  • Beware of wash sale rule
 Employer-Sponsored Plans

• Contributions help reduce tax bill
• Take advantage of employer matches
• $15,000 is 2006 maximum contribution,
  $15,500 in 2007
• $5,000 additional contribution for age 50
  and older
• New for 2006 – “Roth 401(k)”

• $5,000 is maximum 2008 contribution
  and $5,500 is maximum for 2009

• $1,000 additional catch-up contribution
  for age 50 or older
• Phase-out applies to Roth IRA only
   •Single filers -- $53,000 -- $65,000
   •Joint filers -- $85,000 -- $105,000
• Open by April 1, 2007

•   C Corporation
•   S Corporation
•   Limited Liability Company
•   Partnership
•   Sole proprietor
   Expensing Deduction

• Deduct up to 100% of the cost of up to
  $250,000 in property
• Applies to new or used property
• Equipment must be put into service by
  December 31, 2008
• Now applies to software
• Phase-out rules apply
Additional Business Strategies

• Deduct 100% of health insurance costs
   if self-employed
• Defer income and accelerate deductions
• Write off bad debt
• Make the most of business-related
  deductions – travel, auto, meals and
  entertainment, interest expenses
   Charitable Deductions

• Donate appreciated property and avoid
   capital gains tax
• Donate clothing, household goods,
  furniture and deduct fair market value
• Volunteer your time and deduct
   qualified travel and related expenses

• Reduce taxable income

• Use up remaining 2008 balances

• Over-the-counter drugs are now allowable
         Avoid AMT
AMT triggers:
• Higher than average dependency exemptions
• Large deductions for state and local
      income taxes and real estate taxes
• High miscellaneous itemized
     deductions and medical expenses
• Incentive stock options
• NYS taxpayers with an AGI of $100,000
     can be affected by AMT
Training for Success

• Focus on tax savings year-round

• Consider year-end opportunities

• Get help if you need it

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