Janell A. Israel & Associates
Happy Easter!
What's new in taxes:
New
Economic Stimulus Law Passes
In an attempt to boost the economy,
Congress hammered out a new economic stimulus package in mid-February. The
centerpiece of the new legislation, of course, is the highly publicized tax
rebate program. However, other tax incentives targeted at the business sector
were also included in the law.
Here's a brief look at the major
provisions in the new Economic Stimulus Act of 2008.
* Individual tax rebates. Most single
filers will be entitled to receive a one-time tax rebate of $600. The rebates
are doubled to $1,200 for joint filers. However, these rebate amounts will
begin to phase out for higher-income taxpayers. The phase-out begins at $75,000
of AGI for single filers and $150,000 for joint filers, based on 2007 tax
returns. Rebate checks are expected to begin arriving in May.
A late addition to the new law also
authorizes rebates for individuals who have no tax liability but received at
least $3,000 of taxable income in 2007. This covers social security recipients
and disabled veterans (or surviving spouses of disabled veterans).
Finally, you may receive an
additional payment of $300 for each child under age 17. There is no limit on
the number of rebates available for qualifying children.
* Business incentives. Under the new
legislation, a business may benefit from the following two tax provisions:
1. Enhanced Section 179 deductions:
The new law increases the write-off allowed for assets placed in service in
2008 from $128,000 to $250,000. In addition, the dollar limit for the maximum
Section 179 deduction jumps from $510,000 to $800,000. Amounts over this
threshold are reduced on a dollar-for-dollar basis.
2. Bonus depreciation deductions: A
business may be entitled to a 50% "bonus" depreciation deduction for
new equipment placed in service in 2008. Any remainder that is left over after
claiming the 50% deduction is still available for regular depreciation
deductions.
Finally, the new law also raises loan
limits for Fannie Mae, Freddie Mac, and the Federal Housing Authority (FHA). If
you have any questions concerning the new tax breaks in the economic stimulus
package, give us a call.
Tax recordkeeping:
Some
Tips To Make It Easier
Are you sometimes overwhelmed and
intimidated by the prospect of keeping records for federal tax purposes? Well,
you are not alone. Here are some suggestions that should help you determine
what to keep and for how long.
Normal statute of limitations. This is three years from the later
of the due date or the actual filing date of the return. The statute period can
be extended to six years if your income is understated by more than 25%. There
is no statute of limitations if fraud is involved. Be safe and maintain the
following records for seven years.
* W-2s, 1099s, annual brokerage
statements, and other evidence to support taxable income.
* Receipts, cancelled checks,
invoices, and other evidence to support tax deductions.
* IRA and other retirement plan
contributions.
* Support for all charitable
donations of any amount.
Other seven-year records. Some items build a history until
they are reflected on your tax return. Once realized on your return, the
suggested seven-year holding period applies.
* Net operating loss information.
(Generally, net operating losses can be carried back two and forward twenty
years.)
* Property purchases and
improvements. (Keep for seven years following sale.)
* Investment related information.
(Maintain investment purchase and sale information along with any dividends and
stock splits.)
* Worthless securities. (Document
basis and save evidence supporting the date on which the investment went bad.)
Keep indefinitely. Some records
contain important information you may need years later. These records should be
kept indefinitely.
* For example, keep copies of your
filed returns. The IRS doesn't maintain copies after a period of time. Prior
returns might be needed to correct an error in your social security wage
history.
* Also keep information on your
personal residence. Maintain documents supporting your basis along with
improvements. Current tax laws give favorable treatment to your residence, but
one Congressional act can change that. It's better to be prepared.
How to organize. Three-ring binders are a good
collection device. They're easy to organize and maintain. One can accommodate
your old returns and any unrealized long-term tax information. Others can be
used to maintain information on filed returns for the recommended seven years.
Computerized records with scanned documents are another alternative. However
some documents are difficult to scan and readability can be an issue. The
three-ring binder might be the better choice.
Good tax documentation starts with a
commitment to action. If you need more information to organize your tax
recordkeeping, give us a call.
New Business:
Cost Of
Health Insurance A Major Concern For Businesses
The cost of health insurance is a
major concern, both for employees and employers. A recent survey of
approximately 3,000 companies revealed that among those with 200 or fewer
employees, 61% offered health insurance in 2007. This represents a drop from
63% in 2006.
In 2007, about 5% of employees with
health insurance had a high-deductible plan linked with a health savings
account, up from 3% in 2006.
These plans became available in 2003
tax legislation. They are composed of two elements: a high-deductible medical
insurance plan and an IRA-like employee savings account. Both employees and
employers may contribute to the savings account, and those funds can be used
tax-free to pay for medical expenses not paid for by insurance. Balances in the
account can be invested and grow tax-free; money not used in any year can be
carried over to future years.
Though 41% of larger companies offer
such plans, only 7% of employers in smaller companies do. If you would like to
discuss the pros and cons of these plans for your business, give us a call.
Know The Tax Rules For Selling Online
Selling items on eBay and other
online auction Web sites has become a very popular way to get rid of unwanted
household stuff, as well as a way to turn a little profit. Many users have even
started full-time businesses auctioning merchandise on the Web. But like any
business venture, selling items in the virtual world has tax implications that
are all too real.
From a tax standpoint, casual selling
on eBay is essentially the same as holding a garage sale. If you sell an item
for less than you paid for it, you cannot deduct the "loss." When you
sell something for a profit, however, you must report it on your tax return.
Long-term gains on the sale of collectibles, such as artwork, antiques, or rare
coins, are taxed by as much as 28%.
Profit is the difference between the
selling price and your "basis" in the item. In most cases, basis is
simply the amount you paid for it. Inherited items generally have a basis equal
to their fair market value at the time of receipt. If the basis cannot be
documented, it becomes zero, and you pay tax on the entire selling price.
Online selling activity can reach the
point where it is deemed to be a business venture. Status as a for-profit eBay
business versus a casual online seller is not clearly defined. Factors
considered by the IRS include the amount of time you spend selling online and
whether you conduct yourself like other self-employed business owners, such as
keeping accounting records and advertising your services.
The good news is that if you are
treated as a business, you can deduct expenses related to your selling activity.
This can include Internet access fees and home office expenses. You may also be
able to deduct travel expenses incurred in searching flea markets and other
locations for items to sell. The downside to business status is that profits
from selling online may be subject to self-employment tax. What's more,
depending on where you live, you may be required to collect and report local
and state sales taxes.
Taxpayers who operate like a
business, but rarely show a profit, may be treated as a hobbyist and have their
business losses denied. In this scenario, losses can only be deducted to the
extent of gains. Generally, if you show a profit in most years, a few down
years should not put you in danger of this label.
Whether you are an infrequent user of
online auction sites, or an all-out eBay business owner, you cannot afford to
ignore the tax implications of selling online. For the details you need to
avoid tax problems, call our office today.
What's New in Finances:
There are some basic financial
arrangements that all individuals should consider making, no matter what their
age or circumstances. But if you have a family, these basic documents become
essential.
A will isn't the only document you
need in case of an unforeseen tragedy. To properly provide for your family, you
also should have a power of attorney, a directive to physicians, and a
financial inventory.
Will. As you know, a will lets you,
rather than the state, control how your assets will be split among your heirs.
More important, a will allows you to designate the guardian of your minor
children. Properly written, it can even increase your heirs' inheritance by
including simple tax-saving strategies.
Power of Attorney. A power of attorney is a document
that names another individual as your agent. If you were to become disabled or
seriously ill, a power of attorney would allow your agent to pay your bills,
deposit your checks, and make decisions on your behalf. You can decide whether
your power of attorney becomes effective immediately or only upon the
occurrence of a disabling illness or injury.
Directive to Physicians. A directive to physicians (also
called living will, health care directive, or some similar name) tells your
doctor whether to take extreme measures to keep you alive should
you become terminally ill or permanently unconscious. In addition to
assisting your doctors, your directive to physicians will lessen the burden on
your family by clearly describing your desires with respect to this situation.
Financial Inventory. You need a financial inventory. You
should prepare a list of your bank accounts, other assets, income sources,
insurance policies, mortgages, credit cards, and funeral arrangements. In
addition, you should include the name and phone number of your accountant,
lawyer, doctor, and insurance agent.
Take the time now to get your
financial documents in order or to update the ones you already have.
Take a Break
Is
Opportunity Knocking?
"Opportunity is missed by most
people because it is dressed in overalls and looks like work." - Thomas A. Edison
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The information contained in this
newsletter is of a general nature and should not be acted upon in your specific
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information on anything in this newsletter, or for assistance with any of your
tax, business, or financial strategy concerns, contact
our office.
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