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Tax Saving Tips For Preparing Your 2008 Return

Tax Saving Tips For Preparing Your 2008 Return. Advice from CPAs. Recent Tax Law Changes. Economic Stimulus Act of 2008 The Emergency Economic Stabilization Energy Tax Extenders AMT Relief. Charitable Contribution Changes. IRAs

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Tax Saving Tips For Preparing Your 2008 Return

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  1. Tax Saving Tips For Preparing Your 2008 Return Advice from CPAs

  2. Recent Tax Law Changes • Economic Stimulus Act of 2008 • The Emergency Economic Stabilization • Energy • Tax Extenders • AMT Relief

  3. Charitable Contribution Changes • IRAs • Distributions from an IRA to a qualifying charity to be excluded from the owner’s income • Limited to $100,000 • Available for a two year period • Must be made after the age of 70 ½

  4. 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 pumps. • 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.

  5. 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.

  6. $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.

  7. 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.

  8. Filing Status • Married filing jointly • Married filing separately • Single • Head of Household • Qualifying widow(er)

  9. 2008 Tax Rates • 10% • 15% • 25% • 28% • 33% • 35%

  10. 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

  11. Standard Deduction • Taxpayers 65 and older or blind get an • additional standard deduction • Married - $1,050 • Single or Head of Household - $1,350

  12. Itemizing Deductions • An alternative to the standard deduction • Use when these deductions exceed standard deduction • 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.

  13. 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.

  14. 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 separately

  15. 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

  16. Tax Strategies for Life • Family • Education • Home • Investments • Retirement

  17. Family Strategies • Child Credit • Dependent Care Credit • Adoption Credit • Earned Income Credit • Shifting Income

  18. 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

  19. 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

  20. 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

  21. Earned Income Credit Family Size Maximum Credit Two or more $4,824 children One child $2,917 No children $438

  22. 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

  23. 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

  24. Tax Credits • Lifetime LearningCredit 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

  25. 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

  26. 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

  27. Deductions • 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

  28. 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

  29. Dividends • 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

  30. 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

  31. 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

  32. 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)”

  33. IRAs • $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

  34. Structure • C Corporation • S Corporation • Limited Liability Company • Partnership • Sole proprietor

  35. 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 • $800,000

  36. 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

  37. 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

  38. FSAs • Reduce taxable income • Use up remaining 2008 balances • Over-the-counter drugs are now allowable

  39. 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

  40. Training for Success • Focus on tax savings year-round • Consider year-end opportunities • Get help if you need it

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