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TODAY at RRS CPA
Monday October 20, 2008
New Tax Legislation Included in Financial "Bailout" Bill
On October 3 Congress enacted and the President signed into law the widely-publicized bill aimed primarily at resolving the credit crises. The legislation included tax provisions that will extend several tax benefits that were set to expire. We expect our clients will be happy with the following provisions included in the new law:
Alternative Minimum Tax Patch
This is not really a "new tax benefit". Congress has been "patching" the AMT annually for several years now. Because the AMT exemption amount was never indexed for inflation, the AMT would, except for the "patch" force many middle income taxpayers to pay higher taxes. The AMT calcuation - required for everyone who itemizes and has certain tax deductions - disallows certain deductions and assesses a "flat" tax at a higher rate. You pay the higher of the AMT or tax calculated in the traditional way. Congress has been increasing the amount of taxable income exempt from the AMT calculation, and that is what the "patch" accomplishes, once again, for 2008. As in past years it is only a one-year fix so we will face this issue again for 2009.
Debt Cancellation
Homeowners facing foreclosures may benefit from these provisions, first enacted in 2007 and set to expire in 2009. This bill extends the tax relief through 2012. This provision benefits those who, under prior law, might have had to pay taxes on mortgage debts forgiven in foreclosure.
Sales Tax Deduction
First enacted in 2004, the ability to deduct sales taxes is extended through 2009. The sales taxes are only deductible if they exceed state income taxes, so in a state like Maine, this provision benefits a relatively narrow range of individuals. If you pay a substantial amount of sales tax in a given year, such as on the purchase of a vehicle or in other cases, such as on materials used to renovate your home, you may derive a benefit.
Tuition Deduction
The popular college tuition tax deduction of up to $4,000 has been extended through 2009. The deduction is still available only to taxpayers below certain adjusted gross income thresholds. But since those thresholds are higher than the phase-outs that apply to the Hope and Lifetime learning tuition tax credits, this provision will benefit some higher income individuals who might otherwise receive no benefit whatesoever from college tuition payments.
Energy Efficiency Tax Credit
Congress extended through 2009 a popular tax credit available to homeowners who pay for certain energy efficiency improvements to their homes. Improvements qualifying for the credit include insulation, exterior doors and windows (including skylights), certain roofing materials, and heating equipment such as boilers and hot water heaters. The credit has a "lifetime" limit, so if you've previously received the maximum amount of the credit you no longer qualify. If you have made energy improvements this year, however, check with your tax preparer about this credit.
Real Estate Tax Deduction for Non-itemizers
See our August 5 post. This tax benefit enacted just this year only for 2008, is now extended through 2009.
Teachers' Classroom Expense Deduction
This extends the popular $250 above-the-line deduction for teachers who purchase materials for their classrooms. Set to expire in 2007, the deduction is now extended through 2009.
Tax-Free Distributions from IRAs for Charitable Giving
Individuals can give up to $100,000 per year from their IRA accounts to charity. The IRA withdrawal is tax free to the extent it is donated to a qualified charity. The law primarily benefits wealthy individuals who may be facing estate-tax problems. Originally set to expire in 2008, it is now extended through 2009.
Rapid Writeoffs for Certain Business Expenses
This provision extends a tax benefit given to restaurants and certain other retail establishments. Qualified leasehold improvements - normally subject to 39-year straight line depreciation, can be written off over 15 years. Originally set to expire at the end of 2007, the law extended the benefit through 2009.
As always, we are available to provide additional information on all of the above tax law changes, and we will take these provisions into account when tax planning for our clients this year.
Wednesday August 6, 2008
Maine solar hot water rebates for 2009 eliminated
Re-Vision Energy of South Portland, a major Maine installer of domestic solar hot water systems, informs us that the state of Maine has decided to apply funds set aside for 2009 solar rebates to pay rebates to people who had committed to installations this year but who would have been denied the $2,500 rebate because all of the 2008 funds were consumed within six months. Although IRS still offers a tax credit for these installations, an additional $2,500 from the state obviously helps. Unless changed by the Legislature, no Maine rebate will be available on domestic solar hot water installations until 2010.
Tuesday August 5, 2008
NEW TAX LEGISLATION ENACTED!
Congress has enacted and the President has signed the Housing and Economic Recovery Act of 2008 (H.R. 3221) which includes the Housing Assistance Tax Act. This new legislation includes good and bad news, as follows:
GOOD NEWS
>First time home buyer's credit - First-time home buyers (defined as someone who has not owned a principal residence within 3 years of the date the purchase of their new residence closes) can receive what amounts to an interest free loan of up to $7,500 on homes purchased after April 8, 2008 and before July 1, 2009. Those who qualify (there are adjusted gross income limitations) can receive a tax refund on their 2008 or 2009 federal tax returns. The refund must be repaid over 15 years. If you were considering purchasing a home - this is great new tax legislation that might make that decision a lot easier. As with all tax legislation, there are a lot of twists and turns. Call us or schedule an appointment if you want to know more.
> Property tax deduction for non-itemizers - Up to $1,000 for married couples and $500 for single filers can be deducted for 2008. Note that if you paid less than the threshold amount this year, your deduction will be limited to the lower amount. The solution: maximize the deduction by paying some of your 2009 tax bill on or before December 31, 2008. Example: Married couple has an annual tax bill of $750 ($375 billed twice a year). If they do not pay their first 2009 installment during 2008, their deduction is limited to $750. If they pay the 2009 installment by December 31, 2008, the deduction will be $1,000. Approximate tax savings: $50. This deduction is currently available only for 2008. Note that this law provides no benefit to people who already itemize their deductions. Their property taxes continue to be fully deductible and the limitations described above do not apply to them. This new law applies only to people who do not itemize. It is an increase in the standard deduction.
BAD NEWS
> Home sale gain exclusion limitations - The very generous gain exclusion on the sale of a principal residence will be limited in the future on sales of properties that were also used as vacation or rental properties. The bottom line: It may no longer be possible to convert your vacation home or rental property into a principal residence and completely avoid the gain. All sales after December 31, 2008 will be subject to the new rules. Any "non qualified use" (rental or vacation use) of the property occurring in 2009 and later will cause at least part of the gain on sale to be taxable. If you own a vacation home or rental property you wanted to convert to a principal residence you may want to act sooner rather than later. Contact us for additional details.
Special note - You may be able to combine the home sale exclusion rules with the "like kind exchange" rules of IRS Code Section 1031 in order to offset the part of the gain that cannot be excluded using the home sale exclusion. The key to successful tax planning in this area: Contact us BEFORE you sell!
>Credit card information reporting - Processors of credit and debit card transactions will, beginning in 2011, report to IRS the amount of gross payment receipts processed for each business receiving more than $20,000 annually via credit or debit cards. This essentially amounts to receiving a 1099 for your credit and debit card sales. Who else might be interested in this information? Why, Maine Revenue Services sales tax auditors of course! Even if you have no concern about this information being reported it is likely to increase the fees that processors charge for each transaction.
Tuesday July 1, 2008
We have learned that the state of Maine has cut off its $2,500 rebate program for installation of solar heating systems. Apparently solar installers have been swamped with requests for installation of these systems and the state has used up the amount it had budgeted for rebates. Note that a federal tax credit of up to $2,000 is still available. If your installer tells you there are still state rebates available our advice is to check with Maine Revenue Services before you sign your contract, or perhaps withhold payment of $2,500 to the installer until you actually receive your state rebate.
Internal Revenue Service has increased the cents per mile reimbursement rate to 58.5 cents per mile for all business travel. This rate will apply for all miles traveled between July 1, 2008 and December 31, 2008. The rate was 50.5 cents from January 1, 2008 through June 30, 2008. Employees reimbursed at these rates during 2008 do not have to declare the reimbursement as taxable income. Employers deduct the reimbursement as travel expense. If your employer reimburses you less than the allowable amount you may be able to deduct the difference between your reimbursement and the allowable rate on your tax return. You must be able to itemize, and the deduction will have to exceed certain dollar thresholds before you derive any tax advantage. Note that the itemized deduction for mileage may also be limited by the alternative minimum tax. If you have questions call us.
The mileage rate for moving and medical expenses is 27 cents per mile. The rate for charitable work is still 14 cents.
Wednesday June 4, 2008
Congress is at it again, recently enacting some new tax legislation and working on a bundle of other bills that may be enacted later this year. Here's a quick summary of what was recently enacted and what may be on the horizon:
Enacted: The Food, Conservation and Energy Act of 2008
This is the "Farm Bill" that you may have heard about. We don't see much in this bill that will have a direct impact on many of our clients. Perhaps the most significant provision is an extension of an enhanced charitable contribution deduction in connection with the granting of conservation easements. The provision permits someone granting a conservation easement on part or all of their land a larger charitable contribution deduction than was available under existing law. If the individual granting the easement is a farmer, an even larger deduction is available.
The rules surrounding conservation easements are complex and beyond the scope of this discussion, but suffice to say that if you are considering a conservation easement, now is a good time to explore it. Several organizations in town, notably the Androscoggin Land Trust http://www.androscogginlandtrust.org/ and similar organizations are familiar with the rules and can assist in guiding you through the process. The enhanced deduction is available through December 31, 2009. These transactions involve property appraisals and drafting of detailed legal documents, so if you are going to pursue it, don't delay.
There is a provision in this bill that limits losses that can be deducted by farmers on Schedule F, but the limititation applies only to losses above $300,000, so we doubt it will impact many Maine farmers. Farming losses of less than $300,000 will continue to be allowed without limitation.
Enacted: The Heroes Earnings Assistance and Relief Tax Bill of 2008
This bill extends a variety of tax breaks to veterans and their families, including the ability to use tax free combat pay to enhance the earned income credit, the ability to withdraw from retirement plans penalty free (but not tax free!), and the ability to use up amounts set aside in flexible spending accounts. If you are an active or retired veteran be sure your tax preparer is aware of that fact so that you will receive all of the tax breaks provided by law.
This law also includes a new tax credit for businesses employing 50 or fewer employees, for voluntary "differential pay" paid to military personnel on active duty. The maximum credit is $4,000 per employee (20 percent of $20,000). Differential pay is the difference between the employee's regular salary and his/her active duty military pay. If this works like other credits we've seen, note that you'll probably have to reduce the wage deduction by the amount of the credit (still a good deal), and you'll also have to beware the Alternative Minimum Tax (not such a good deal). If you think you might qualify for this credit contact us and we'll help you answer any questions you may have.
Housing Bill On the Horizon
If you are a "low or moderate income first time home buyer" you may be interested to know Congress is considering a refundable tax credit of up to 10 percent of the purchase price of your new home. The maximum credit would be $7,500 for married couples, and $3,750 for singles. Apparently this tax benefit would be more along the line of a no-interest loan with easy repayment terms, since you'd have to repay it over 15 years. As with all tax legislation the devil is in the details. For example, what happens if you sell your home at a loss after 5 years? Do you still have to repay the entire credit? We haven't seen much detail on this yet, but stay tuned. Sounds interesting.
Also of interest - Non-itemizing tax filers might be eligible to deduct a portion of their real estate taxes this year. This deduction would benefit many of our clients who own their homes but whose standard deduction exceeds the sum of their itemized deductions. The proposal is to permit a $700 deduction for marrieds and $350 for singles. Unfortunately this is one of those "don't blink or you'll miss it" deductions. Congress is talking about permitting it only for 2008!
The "Extenders"
Several popular tax breaks are well on the way to being extended for yet another year. These include:
>Deduction for state and local sales taxes.
>Deduction for teacher's classroom expenses (up to $250 per year).
>College tuition deduction (up to $4,000 per year).
>Energy efficiency tax credits
While these have not yet been extended, we're told the prospects look pretty good. Stay tuned.
Friday May 9, 2008
Congratulations to Richard Gleason, Auburn, Maine "Citizen of the Year", and Thank You Dick for your service to the community. We are proud to count you among our clients!
Looking to boost your charitable contributions? Did you know that the extra dollars you pay for a vanity license plate might be deductible? The IRS has ruled that if the extra dollars (above the normal registration fee) are used to advocate a legitimate charitable cause (a wildlife fund for example) the excess can be claimed as a charitable contribution. The registration fee will be reflected on your vehicle registration so be sure to point out the "vanity plate" fee when your accountant is reviewing your registration for excise tax.
Monday May 5, 2008
Time flies when you're having fun! A hectic end to "tax season", a little time off, wrapping up loose ends and the beginning of the non profit audit season --and before you know it more than a month has passed. Although we accountants are tempted to view the end of "tax season" as a time for rest, in reality things are just getting ramped up for our clients. For calendar year clients, the first quarter has ended, the second quarter is under way. For calendar-year businesses here are a few things to do before too much more of the year goes by:
> Be sure you have posted the year-end adjusting entries from your accountant. The adjustments should be posted using a date no later than December 31, 2007. Once the adjustments are posted, match your final December 31, 2007 trial balance to your accountant's. This assures that your internal records will match the records used by your accountant to prepare the company tax return and financial statements. It will also save your accountant time and trouble when closing your books for 2008. If you did not receive adjusting entries from your accountant, phone and request them. Tax season is a busy time and these details sometimes get lost in the shuffle.
> The first quarter is over - have you looked at your financial statements lately? A few basics. If you've been in business for two or more years you should always print month-to-month and year-to-year comparative statements, and investigate any significant differences. Doing so may help you make changes now that can improve profits or avoid financial hardships later in the year. If you don't produce financial statements or don't understand them, phone your accountant and ask for help. With the ready availability of inexpensive computers and software there is no excuse for failure to produce regular financial statements. Most accountants will be eager to help you understand and interpret your financial results.
> It's not too early to think about 2008 tax planning. Has your accountant set you up with estimated tax payments? If not perhaps a call for tax planning is in order to be sure you don't face a big tax bill again this year. If estimates have been scheduled, do you appear to be on target based on first quarter results?
Monday March 24, 2008
Your accountant says your business made a ton of money last year and you owe big taxes. Trouble is, you've got no cash. How can you possibly have a profit? One of the common misconceptions among business owners is that taxable profits and cash flow are one in the same. Sometimes that's true. Often it's not. Here's a classic situation. Business owner borrows funds, purchases supplies and equipment and writes everything off, reducing taxable profits. At year end cash is plentiful and there is very little tax to pay. Great! Now it's next year. Business owner is paying off all that debt incurred last year. The checking account is nearly empty at year end. Business owner thinks: "I made no money this year - nothing in the checkbook". Accountant says: 'Wrong!" Paying off the business debts incurred in the prior year provides no tax deduction. The deductions were received last year when the equipment and supplies were purchased and written off. Business owners can avoid these situations by looking ahead and anticipating the tax impact of their financial decisions. At RRS CPA tax planning and cash flow planning go hand in hand.
Monday March 17, 2008
You're starting a business so it's time to incorporate, right? Not so fast. Incorporation isn't right for everyone. Sometimes it's the worst thing you can do. Start up ventures often lose money in the early years. Incorporating at the wrong time may lock those losses up inside an entity where they cannot be used to offset personal income tax. It may be more beneficial to operate as a sole proprietor or limited liabililty company and let the losses flow onto your personal tax return where they can offset other sources of household income. If you decide the business isn't right for you, an unincorporated business is simpler to liquidate than a corporation. Whatever you do, don't go it alone. Put together a team including a good CPA and a law firm that specializes in business law. We're ready to help with this decison and others critical to the success of your business.
Saturday March 15, 2008
Just a reminder that corporate taxes are due Monday. Subchapter S corporations generally owe no tax and are merely information returns. You need only sign and date in the spaces indicated and mail them in. C corporations, on the other hand, must pay any tax due by the filing deadline. Please note that IRS does not want you to enclose payment with your corporate tax return. You must pay either by depositing the funds using a payroll tax deposit coupon (Form 8109), or by using the Electronic Federal Tax Payment System (EFTPS). You must register with IRS in order to use EFTPS. If you have run into a bind and need to extend, contact your accountant. Having trouble getting in touch with someone? Use form 7004 (available via the forms link on our site). It's a relatively simple one-page form. All of our corporate extensions were filed today. Mondays are stressful enough without worrying about filing extensions!
Thursday March 13, 2008
IRS has announced the "alternative vehicle" credit for certain Honda vehicles will be reduced for vehicles purchased after December 31, 2007. The hybrid models of the Accord and Civic now qualify for only 50% of the credit. The credit will be further reduced to 25% for purchases after June 30, 2008, and no credit will be available for purchases of these vehicles after December 31, 2008. Of course, when shopping for a hybrid with hopes of receiving a tax credit to help offset the purchase cost, DO NOT forget the alternative minimum tax. The AMT can operate to completely eliminate the credit. It's a good idea to check with your accountant before you buy. A timely tax projection can save a major disappointment later on.
Monday March 10, 2008
Concerned about oil prices? Who isn't these days? If you are looking for alternatives you'll be pleased to know IRS offers tax credits for installations such as efficient hot water boilers, and solar electric and hot water systems. Used to be this was pretty rare and exotic stuff, but already this year we've processed two tax returns that received the full $2,000 tax credit for solar installations. Furthermore, both clients appear very happy with their installations and indicate they are saving money.
Wednesday March 5, 2008
Looking for a tax shelter? There are many types of qualified retirement plans available for your small business. The SIMPLE, SEP, and 401(k) are three of the most commonly recommended. For some, the good old traditional IRA still works well. Which plan you adopt depends upon your personal retirement goals, your company's budget, and your philosophy on contributing for the benefit of your employees. We have often recommended the SIMPLE plan to our business clients with employees, because of its low administrative burden and flexibility. For 2008 it permits you to contribute 100 percent of your salary, up to $10,500 (or $13,000 if 50 or older). Your company must match up to 3 percent of compensation for you, and any of your employees who participate. The match can drop as low as 1 percent for a limited time. The SEP (Simplified Employee Pension) works well for self-employed individuals with no employees. Like the SIMPLE there are few administrative costs and the contribution limit for 2008 is a very generous 25 percent of earned income, with a limit of $46,000 ($51,000 if 50 or older) . The 401(k) is more complex and is the only one of the three that requires the filing of an annual information return with the IRS. But with complexity comes additional flexibility and a very generous $46,000 (again $51,000 if 50 or older) contribution limit. Of course the simplest plan around is the traditional IRA, and the good news is that the contribution limit for even this modest plan has been increased, for 2008, to $5,000 per person ($6,000 if 50 or older). If you are thinking about implementing any of these plans, start the process early in the year, and do seek professional advice and assistance. As always, we are ready to help.
Saturday March 1, 2008
March has come roaring in. Let's hope it goes out bleating like a gentle lamb. Let's also hope, however, that the warm weather comes on gradually so that we get a nice slow snow melt. The forecasters are already warning that a sudden warm spell could bring on significant flooding. If you are in a flood prone area and do not have flood insurance it might be a good idea to look into it. Be aware that most property and casualty insurance policies exclude flooding. On our site you will find a link to the Insurance Consultants of Maine website, a great source of information about flood and other types of insurance. Of course if you do suffer an uninsured loss you may qualify for a casualty loss deduction. However, as we noted in an earlier post (February 14) the IRS sets the bar exceedingly high for deducting casualty losses, so do not count on being made whole by the tax savings. A good insurance policy is your best protection.
February 29, 2008
How do you qualify yourself for a federal "rebate" under the newly-enacted economic stimulus legislation? One of the most important things you need to know is you MUST file a 2007 tax return, even if you do not normally do so. So, phone all those elderly relatives you know who may be collecting social security and normally do not file. There are organizations in town who will file returns for them free of charge and they'll receive up to $300 each.
Here for your reading pleasure is IRS's "Answers to Frequently Asked Questions" about the economic stimulus rebates expected this spring. Just click on the link below. The information was updated on February 28 and will help you understand what to do.
http://www.irs.gov/newsroom/article/0,,id=179181,00.html
Thursday, February 28, 2008
When the government offers to send out rebates to taxpayers, can the scammers be far behind? We were alerted today to the fact that people are beginning to complain about unsolicited calls from con artists posing as government agents. The scammers demand social security numbers, bank account numbers, and other private information and tell their victims this is necessary in order to obtiain the rebates. If you receive a call of this nature, hang up. If an email, delete it. Report suspicious activity to the IRS via their website and also to the state attorney general's office. Once you've filed your 2007 income tax return there is nothing more you need to do to obtain your rebate check. If you are qualified, you'll receive a check automatically this spring. If you don't receive a check and want to determine your status, you can phone us if you're a client, otherwise phone the IRS directly.
Wednesday, February 27, 2008
Well, we've just enjoyed our 21st snow storm of the season. If we named them like the Floridians name their hurricanes, I guess that would make this "Ursula" .
Tuesday, February 26, 2008
Divide and conquer! We've run into a number of situations in which it benefits married couples to file separately. Recently one of our clients saved $196 by filing married but separate tax returns. Although it is generally more beneficial to file a joint return the reduction in the adjusted gross incomes of the individuals sometimes releases tax benefits that would otherwise have been denied. In this recent case, one of the individuals received a retirement contribution credit that was "phased out" on the joint return. We are alert to these situaitons and will recommend filing separate tax returns when it benefits our clients.
Saturday, February 23, 2008
One bit of bad news for businesses in the economic stimulus package: Congress rejected the idea of extending the period for carrying back net operating losses. That means we're stuck with a two-year carryback period. The carry-forward period, however, is still a relatively generous 20 years.
Friday, February 22, 2008
It's Tax Time - Do you know what your children are up to? You'd be surprised at how many parents don't know whether their college-age children are filing a tax return, and if so, whether they are claiming themselves. With the ease of filing taxes online now, many parents are simply letting their kids, away at school, file their own tax returns. But without proper communication the family is risking thousands $$ in tax savings and perhaps hassles later on with IRS. In most cases your college-age child should be claimed as your dependent. Claiming the child as a dependent entitles you not only to the dependency exemption, but also to the tuition tax credit or deduction, and the deduction for student loan interest. These deductions and credits can easily be worth $2,500 or more in tax savings. Children who file their own returns may inadvertently fail to check the box indicating that their parents are claiming them as dependents. They may also neglect to pass along the 1098-T form they received from the school, indicating how much was paid in tuition. Parents may claim the child, unaware that the child already claimed themself, and may also neglect to claim the tuition, thinking that since the statement is in their child's name, the child is entitled to the tuition tax benefit. The situation may get much worse a year or two later when both parent and child receive a letter from IRS informing them that the child was claimed twice. So, communicate with your college-bound students. Better yet, talk to us before giving your child the green light to file online!
Thursday, February 21, 2008
More good news. The economic stimulus bill enacted recently also raises first-year depreciation limits for passenger vehicles purchased for business use in 2008. The first-year depreciation limit was raised from $3,060 to $4,600. This provides an additional $1,540 first year tax deduction for someone purchasing a vehicle for use in their business. Of course, the full cost of the vehicle can be written off over time. The law simply increases the amount that can be deducted in the first year. The law impacts purchases of most "passenger type" cars and light trucks and suvs - those under 6,000 pounds gross unloaded vehicle weight and designed primarily for carrying passengers. Larger vehicles may qualify for larger writeoffs so check with us before you buy!
Wednesday, February 20, 2008
Is your company taking advantage of the Domestic Production Deduction? This special deduction is available to a wide range of businesses, and this year has doubled from 3 percent to 6 percent of qualified net income. This is potentially a very valuable deduction. One of our clients this year received a deduction exceeding $50,000, which will save the shareholder nearly $20,000 in tax. That'll bring a smile to just about anyone's face! Companies engaged in manufacturing, construction trades, and even some "service" trades such as engineering can benefit. If you think you may qualify contact us.
Monday, February 18, 2008
Many tax credits are still available this year. Among the more popular: HOPE and Lifetime Learning credit for college tuition; Home energy improvement credits for energy efficiency improvements to your home; Retirement savings credit for contributions to a retirement plan, and the alternative vehicle tax credit for the purchase of a hybrid vehicle. Some of these credits phase out at higher income levels and some may also get eliminated by the alternative minimum tax, but it's always worthwhile to test for them. If you believe you may be qualified bring information about these expenses to your tax appointment!
Saturday February 16, 2008
We are open Saturdays now through April 15. Office hours vary but you can usually find someone here between 8 a.m. and 6 p.m.
Friday February 15, 2008
We are one month away from the corporate filing deadline. Both S and C corporation tax returns are due on March 17. Partnership and LLC taxes are due a month later, April 15th. Something to keep in mind this year - both IRS and the state of Maine impose penalties for late filing of S corporation and partnership tax returns. This will be the first year that the state imposes penalties on these returns. While IRS will forgive these penalties if you can provide "reasonable cause" for late filing, we doubt Maine Revenue Services will be in a "forgiving" mood - given the state's budget situation. Extensions are easily filed for these tax returns so if you're running late, be sure to file an extension before the deadline! At RRS we track our client list carefully and contact clients before the deadline.
Thursday February 14, 2008
Happy Valentine's Day!
Planning to take a sweetheart to dinner today? Take a client along and make it 50 percent deductible! Better yet throw a Valentine party for employees. Did you know that meals on premesis are fully deductible when employees are required to remain on post during the meal? Be sure to have your accountant segregate "50 percent deductible" meals from "100 percent deductible" meals at tax time.
Did you survive the "Great Ice Storm of 2008"? Hopefully you did not suffer any severe damage. IRS permits a deduction for casualty losses; however, it's a deduction that rarely yields much tax beneift. Expenses paid to repair or replace property must first be reduced by insurance proceeds. If you have anything left after that, the total must exceed 10 percent of your adjusted gross income, plus $100. That's a pretty high barrier to leap. Barring an outright uninsured disaster many people end up deducting nothing.
Wednesday February 13, 2008
Look at it this way. If you are in business, the cost of clearing snow from your parking lot is a deductible expense.
Bonus depreciation returns
The economic stimulus bill enacted by Congress just a few days ago includes a provision for "bonus" depreciation for property placed in service in 2008. This provision is in addition to the more generous "expensing" election that can be made under Sec. 179 (see February 8 comments below). The "bonus" depreciation permits a more generous up front writeoff of many types of business assets. The section of the law that excites us the most is the ability to take "bonus" depreciation on qualified leasehold improvements. Normally leasehold improvements are written off over 39 years on a straight line basis. Not very exciting. The "bonus" provision permits you to write off up to 50 percent of the cost of the property in the first year. Now THAT's exciting, especially if you've spent $150,000 on leasehold improvements and anticipated a 39-year writeoff. Without bonus depreciation your first year writeoff would be, at best, $3,846. With the bonus provision, your first year writeoff could be a very satisfying $76,923.
Tuesday Febrary 12, 2008
More detail on Economic Stimulus "Rebates"
>For most people the payments - to begin this spring after tax filing season- will be based on 2007 income and tax liabilty. But, you don't necessarily need to file a 2007 tax return to receive a payment. Those receiving only social security benefits and people receiving certain veterans' benefits will qualify. Apparently the government will determine eligibility for these "non filers" using Social Security Administration and Veteran's Administration records.
>$300 is the lowest rebate that will be paid. Larger payments, up to $600 per individual, will be paid to those with larger tax liabilities. Those with dependent children under age 17 with under $150,000 adjusted gross income ($75,000 if filing single or head of household) stand to make out the best. A married couple filing a joint return with three dependent children under age 17 could receive $2,100. Since there is no cap on the number of dependent children under age 17 that qualify, the more the merrier!
> The rebates are actually an advance of a credit to be calculated on your 2008 tax return. Because Congress wanted to distribute the funds immediately, the calculation is based on your 2007 tax return. If you fail to qualify because your 2007 income is too high you won't receive a check in May but, never fear, you have another chance to qualify when you file your 2008 tax return.
>What happens to those who qualify for the credit based on 2007 but fail to qualify in 2008? If history repeats itself, you'll get to keep the money anyway. That's how Congress handled the last "great giveaway" in 2001.
>The rebates are phased out at higher income limits. For single filers the rebates begin to phase out at $75,000 adjusted gross income and disappear at about $87,000 of AGI. For married filing joint filers, the rebates begin to phase out at $150,000 of AGI and disappear at about $174,000. If you have qualifying children the the phase-outs are somewhat higher.
>Like every tax law this one has lots of twists, turns exceptions and limitations. If you have questions about whether you may be eligible we have information available at our office. Naturally, if you are one of our clients we will discuss these matters with you when we meet with you this spring to prepare your taxes.
February 11, 2008
Tax returns on CD
In an effort to do our part to "go green" and reduce our carbon footprint we are offering all of our personal tax clients the option to receive a copy of the tax returns on CD rather than paper. The CD version is an Adobe file readable by downloading the free Adobe Acrobat reader software. Clients who prefer paper copies will receive them. Several years ago our firm stopped retaining paper copies of both business and personal returns. All files are stored electronically, which has many advantages not the least of which is reducing the need for paper and filing cabinets!
February 8, 2008
REBATE CHECKS COMING YOUR WAY
Congress has enacted and President Bush is expected to sign legislation approving the payment of "rebates". Here's what we know at the moment:
> You won't have to apply for the money, the government will send it to you automatically.
> Your eligibility will be based on your 2007 tax return. Early information indicates that single individuals with up to $75,000 of "income" and married couples with incomes up to $150,000 will qualify. However, we have yet to learn how the legislation defines "income". We're not sure yet whether the legislation refers to adjusted gross income or taxable income. More people will qualify if the legislation is referring to taxable income.
> Single households with up to $75,000 of "income" will qualify for a minimum of $300 and a maximum of $600.
> Married households with up to $150,000 of "income" will qualify for a minimum of $600 and a maximum of $1,200 and will also receive an additional $300 for each child under 17. We're not sure whether there's a cap on the number of kids that qualify, so if you've got 6 kids under 17 don't spend that extra $1,800 just yet.
> Payments are expected to start going in the mail in May.
We'll provide more details when they become available.
MASSIVE INCREASE IN BUSINESS EXPENSING
If you own a business and were planning a large capital investment in 2008 you're in luck. The Stimulus bill referred to above also includes a massive increase the the Section 179 expensing rule which allows a business to write off current year capital assets such as computers and office furniture. Under the legislation a business can write off up to $250,000 of current year asset acquisitions, as long as total asset acquisitions do not exceed $800,000 for the year. This will provide a huge tax benefit acceleration for those businesses making significant capital investments in 2008. Details are sketchy regarding how long this will last. Before the legislation was enacted, expensing limits for 2008 were $128,000 and asset acquisitions could not exceed $510,000. We'll be advising our clients of these new, much more generous limits so that they can take advantage of the tax savings this year.
Lower interest rates now a reality
As you may have heard, the Federal Reserve has again cut interest rates. And we are being told they will be cut again in March. What does this mean to you? Rates on business loans and home mortgage rates are dropping again and you should be aware of the potential for restructuring debt or refinancing. If you can obtain a rate at least one point below your current rate it might be worth your while. Contact us if you have questions about whether to refinance.
2007 Maine tax law changes to note:
Sec. 529 deduction: For tax year 2007 and beyond Maine now allows a deduction of up to $250 per beneficiary for contributions to Sec. 529 college savings plans. The deduction is phased out for single or married-separate filers with federal adjusted gross income exceeding $100,000 and joint filers with federal AGI of $200,000 or more. Previously no deduction has been allowed. We will be advising our clients with Sec. 529 plans to about this deduction.
Use tax increase: The "default" rate for calculating "use" tax on your Maine tax return has been doubled. The "old" rate was .04 (four tenths of a percent) of Maine adjusted gross income. The "new" rate, effective this year, is .08. If you did not purchase any goods out of state you may enter a "zero" rather than using the default rates. You may also calculate the tax on your own, based on your actual out of state taxable purchases.
2007 Federal tax law changes to note:
Social Security Wage Base Up Again: The wage base for calculating social security tax has been raised for 2008 to $102,000 from $97,500. If you earn salary or self employment income of at least $102,000, the increase in the wage base constitutes a tax increase of $558. If you are an employee, $279 of this is paid by your employer. If you own your business, you're subject to the full $558 tax increase. There may be ways to shield yourself from some of this tax increase. Contact us if you want to know more.
Federal mileage rate: The 2008 IRS approved mileage rate for business travel is 50.5 cents per mile. The rate for 2007 was 48.5 cents per mile. The 2008 rate for medical or moving expenses is 19 cents per mile. The rate for 2007 was 20 cents. Yes, it dropped a penny - go figure. The rate for charitable travel is 14 cents per mile, no change from 2007.
AMT PATCHED AGAIN! Congress on December 19 enacted the "Tax Increase Prevention Act of 2007", once again raising the AMT exemption for 2007. The one-year fix will avert a tax increase for many of our clients.
Added home sales tax break for surviving spouses - The new law does contain an important provision for a surviving spouse seeking to sell a principal residence. Under previous law the surviving spouse was able to use the higher $500,000 gain exclusion only if the home was sold in the year their spouse died. Beginning with sales after January 1, 2008, the surviving spouse could be eligible to use this higher gain exclusion for up to two years following the death of their spouse.
Big break for some foreclosures - The new law also grants a potentially very substantial tax break to some people who face home foreclosures. The law expands the number of situations in which debt forgiven as part of a forclosure can be excluded from taxable income. If you are facing a foreclosure proceeding make it a point to learn more about this aspect of the new tax law.
DO YOU KNOW ABOUT THIS CREDIT?
There is a fuel tax credit of 50 cents per gallon of propane used in propane-powered forklift trucks. If your business uses propane powered forklifts - call us. We'll tell You how to obtain this potentially very valuable credit.
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