Recent Tax Law Changes

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Recent Tax Law Changes

• AMT Patch
• Extended Mortgage Foreclosure Tax Relief
• New Energy Incentives
• Enhanced Child Tax Credit
• Disaster Area Tax Relief

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Avoid AMT

• AMT Triggers
• Higher than average dependency exemptions
• Large deductions for state and local income taxes
• Higher real estate taxes
• High miscellaneous itemized deductions and
  medical expenses

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2008 AMT Exemption Amounts

• Single/Head of Household 46,200
• Married/Joint/Qualifying Widow(er) 69,950
• Married/Filing Separately 34,975

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Extended Mortgage Foreclosure Tax Relief

• Up to 2 million exclusion from discharge of
  qualified principal residence indebtedness
• Years of occurrence 2007, 2008 or 2009
• Exception continues through 2012

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New Energy Incentives

• Energy efficient home improvement credit expired
  in 2007 and available in 2009not in 2008
• Four credits for energy-efficient vehicles
• Check with a CPA or the IRS for a list of
  qualified vehicles and credits

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Enhanced or Additional Child Tax Credit

• 1,000 credit per qualifying child
• Child must be under age 17 (end of calendar year)
• Child must be claimed as a dependent
• Child must be a U.S. citizen or resident
• Reduces tax bill
• Phase-out for higher-income families

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Disaster Area Tax Relief

• Helps homeowners recovering from disaster
• Option to adjust deductions
• Additional time to file tax returns and pay taxes

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Filing Basics

• Filing Status
• Tax Rates
• Standard Deduction
• Standard Deduction Additions
• Itemizing Deductions
• Charitable Contributions
• Temporarily Extended Tax Breaks
• Personal Exemption

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Filing Status

• Single
• Married Filing Jointly
• Married Filing Separately
• Head of Household
• Qualifying Widow(er)

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2008 Tax Rates

• 10
• 15
• 25
• 28
• 33
• 35

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Standard Deduction
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Standard Deduction Additions

• Taxpayers 65 and older and/or blind get
  additional standard deduction
• Married (filing jointly or separately) - 1,050
• Single or Head of household - 1,350
• Other additional deductions available
• State/federal filing requirements

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Itemizing Deductions

• Alternative to standard deduction
• Use when total deductions exceed standard
  deductions
• Phase-out rules apply
• Single/Married filing jointly/Head of household -
  159,950
• Married filing separately - 79,975
• Advance planning reduces tax liability

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Charitable Deductions

• Donate appreciated property and avoid capital
  gains tax
• Donate clothing, household goods and furniture in
  good condition, and deduct fair market value
• Volunteer your time and deduct qualified
  transportation, lodging, meals and other related
  expenses
• Documentation is required for monetary donations
  and some non-monetary donations

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Temporarily Extended Tax Breaks

• Option to deduct sales tax instead of state and
  local taxes
• Higher education tuition deduction
• Out-of-pocket classroom expense deduction
• Additional standard deduction for real estate
  taxes (non-itemizers)

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Personal Exemptions
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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
• Consider personal circumstances and new
  administrations public policies

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Tax Strategies for Life

• Family
• Education
• Home
• Investments
• Retirement
• Business

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Family Strategies

• Kiddie Tax
• Adoption Credit
• Dependent Care Credit
• Earned Income Credit
• Shifting Income

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Changing Kiddie Tax Rules

• Makes income shifting to children less beneficial
• Applies to
• All children under 18
• Most children who are 18
• Most full-time students between 19-23
• Other choices
• State pre-paid tuition plans
• Section 529 Plans

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Adoption Credit

• Credit of up to 11,650 per eligible child
• Employer reimbursement up to 11,650
• Phase-out rules apply
• Parents adopting special-needs child get full
  credit, regardless of actual expenses
• Expenses for foreign adoption deducted only when
  adoption final

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Dependent Care Credit

• Child must be under age 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, e.g. incapacitated
  dependent of any age

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Earned Income Credit
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Shifting Income

• Reduces taxes on investment income for college
  savings
• Consider gift to children (or anyone else) up
  to 12,000 without being subject to gift tax
• Hire your children
• First 5,450 earned by each child is tax-free
• Earned income is not subject to Kiddie Tax
• File W-2 and other necessary tax forms for child

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Education Strategies

• Tax Credits
• Hope Credit and Lifetime Learning Credit
• 529 Plans
• U.S. Savings Bonds
• Student Loan Deduction
• Higher Education Tuition Deduction
• Pre-paid Tuition Plans

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Tax Credits

• Hope Credit and Lifetime Learning Credit
• Phase-out begins
• Single - 48,000
• Joint - 96,000
• Not available to all taxpayers

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Hope Credit and Lifetime Learning Credit

• Hope Credit
• Worth up to 1,800 per student per year
• Applies to each of first two years of college
• Lifetime Learning Credit
• Worth up to 2,000 per year
• Applies to undergraduate, graduate and
  professional degree courses
• Not limited to any number of years

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529 Plans

• Tax-advantaged way to save money for college
  expenses
• Money grows tax-free
• Qualified tax-free withdrawals
• Tax-free distributions permanent part of tax code
• Can be used for gifts from family members

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U.S. Savings Bonds

• Tax benefits for qualified higher education
  expenses
• Benefit limited in certain circumstances

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Student Loan Deduction

• Deduct up to 2,500
• No need to itemize
• No limit on repayment period length
• 55,000 to 70,000 phase-out range for single
  filers
• 115,000 to 145,000 phase-out range for
  married filing jointly

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Higher Education Tuition Deduction

• Deduct up to 4,000 (if AGI does not exceed
  65,000 for single and 130,000 for married
  filing jointly)
• Deduct up to 2,000
• Phase-out limits apply
• Single 65,000 - 80,000
• Married/Filing jointly 130,000 160,000
• No need to itemize

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Pre-Paid Tuition Plans

• State-instituted plan
• Plan inception date and childs age key factors
  to amount contributed
• Guarantee tuition costs covered not room, board
  or books
• Tax treatment similar to 529 Plans

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Homeowner Strategies

• Deductions
• Selling Your Home

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Deductions

• Interest deductible on
• Up to 1 million of home-acquisition loans
• Up to 100,000 in home equity loan or line of
  credit
• Real estate taxes

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Selling Your Home

• Exclude up to 250,000 in capital gains from sale
  of home for single filers 500,000 for joint
  filers
• Must own and use home as principal residence for
  at least two of five years preceding the sale
• Available only once every two years
• Reduced exclusion available
• Special exceptions available

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Investment Strategies

• Dividends
• Capital Gains Tax
• Offset Capital Gains with Losses

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Dividends

• Top dividend tax rate of 15 for qualifying
  dividends
• Rate is 0 for taxpayers in 10 and 15 brackets
• Tax rates subject to review
• Check ex-dividend date
• Does not apply to interest payments
• Do not let tax considerations drive investment
  decisions

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Capital Gains Tax

• Maximum tax rate on long-term gains is 15
• No tax for taxpayers in 10 or 15 brackets
• Asset must be held more than one year
• Tax rate of 28 applies to collectibles

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Offset Capital Gains with Losses

• Capital losses offset capital gains
• 3,000 (1,500 for married filing separately) in
  net capital losses can be deducted against
  ordinary income
• Keep track of losses unused, and short- and
  long-term
• Beware of wash sale rule

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Retirement Strategies

• Employer-Sponsored Plans
• IRAs

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Employer-Sponsored Plans

• Pre-tax contributions help reduce tax bill
• Take advantage of employer matches
• 15,500 is 2008 maximum contribution if under age
  50
• 5,000 additional catch-up contribution for age
  50 or older
• Roth 401(k) is another option
• 401(k) losses are not tax deductible

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Individual Retirement Accounts (IRAs)

• 5,000 is maximum 2008 contribution
• 1,000 additional catch-up contribution for age
  50 or older
• Phase-out rules apply
• Open/contribute by April 15 for 2008

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Business Strategies

• Structure
• Section 179 Deduction
• Additional Business Strategies
• Net Operating Losses
• Estimated Taxes
• Quick Refunds

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Structure

• C Corporation
• S Corporation
• Partnership
• Limited Liability Company
• Sole Proprietorship

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Section 179 Deduction

• Deduct up to 100 of the cost of up to 250,000
  in property
• Applies to new and used personal property, and
  software
• Phase-out rules apply
• Property put into service after December 31, 2007
  and before January 1, 2009
• First-year bonus depreciation rule
• Consider alternatives and future income

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Additional Business Strategies

• Deduct
• 100 health insurance payments if self-employed
• 50 of self-employment tax
• Bad debt (under some circumstances)
• Business-related auto expenses and travel meals
  and entertainment costs
• Defer income and accelerate expenses
• Contribute to retirement plan
• Keep expense records
• Savings plan for you and employees

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Net Operating Losses

• Year-end business losses in financial climate
• Use net operating loss carry-back rules

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Estimated Taxes

• Approaches for establishing tax liability
• 90 rule

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Quick Refunds

• Refund of estimated tax payments
• January filing deadline

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Key Takeaways

• Follow CPAs advice
• Plan for tax savings year-round
• Dont wait until its too late