Janell A. Israel & Associates
1585 Kapiolani Blvd., Suite 1604, Honolulu, Hawaii 96814 Phone: 808-942-8817
July 2008 Tax Newsletter
What's new in taxes:
IRS Audits More Returns
The IRS recently released data showing an increase in taxpayer audits during fiscal year 2007 (which ended September 30, 2007).
The 2007 IRS audit rate for individual returns reporting income of $1 million or more increased 84% over 2006. The total number of individual returns audited in 2007 for all income levels increased by 7% to 1.3 million, the highest number of audits since 1998.
Business audits for 2007 also increased, up 14% from the prior year. The audit focus was on partnerships and S corporations, with audits of these pass-through entities increasing 26% in 2007. Audits of large corporations decreased slightly in 2007, but audits of mid-sized corporations increased.
The IRS filed 3.8 million levies and about 700,000 liens during 2007. IRS enforcement activities produced $59.2 billion in revenue during 2007, compared with $48.7 billion in 2006 and $34.1 billion in 2002.
Summer Tax Moves
* Your vacation home. If you have vacation/rental property, you might increase your tax deductions by adjusting the number of days you use your vacation home.
* Day camp. If you and your spouse work, the cost of sending your children to a summer day camp may qualify for the child care credit.
* Business entertaining. Summer is a good time to do business entertaining. Keep records of the cost, the date, the attendees, and the business purpose. Your tax deduction is limited to 50% of the cost.
* Hire your children. Put your children to work in your business this summer. A reasonable wage paid for legitimate work is a business deduction.
* Estate taxes. The estate tax is still with us. Make time this summer to create or update your estate plan as part of your overall tax-reduction efforts.
* Kiddie tax. Consider your options if the "kiddie tax" will affect your children this year (up to age 19; to 24 for full-time students).
* College fund. Now that the tax benefits of Section 529 plans have been made permanent, investigate their suitability in building a college fund for your children.
* Summer driving. Keep track of tax-deductible summer driving. The IRS has just increased the standard mileage rate for business, medical, and moving driving. For the last six months of 2008, the business mileage rate has been increased to 58.5 cents a mile. The rate for medical or moving costs has been increased to 27 cents a mile. The rates for the first six months of 2008 (January 1 through June 30) remain at 50.5 cents for business and 19 cents for medical and moving. The rate for charitable driving remains at 14 cents a mile for all of 2008.
New Business:
IRS Raises Mileage Rates
With gas prices soaring, the IRS has responded to numerous requests to increase the standard mileage deduction for business driving.
For the final six months of 2008, the standard mileage rate for business driving has been raised to 58.5 cents per mile. The rate for business miles driven from January 1, 2008, through June 30, 2008, remains at 50.5 cents per mile. (The IRS also increased the deductible rate for medical and moving mileage for the last six months of 2008 to 27 cents a mile. For the first six months of 2008, the rate is 19 cents a mile.)
The IRS adjusts the standard mileage rates for business driving annually, but when driving costs rise dramatically during the year, the Service may consider a midyear change. Rates are based on annual fixed and variable costs of operating a car.
A study by the National Federation of Independent Businesses determined that the cost of energy is ranked as the second most troubling problem for small businesses this year.
What's New in Finances:
Don't Put Your 401(k) On Automatic Pilot
Automatically enrolling new employees into a company’s 40l(k) plan was made easier by the Pension Protection Act of 2006. A survey of 5,490 plans by Plansponsor, a Connecticut research firm, revealed that about 25% of companies now have automatic enrollment in their plans.
The good news about automatic enrollment is that it gets workers to start saving. The not-so-good news is that the rate of saving is often below the rate these employees would have chosen on their own. Trusting to automatic savings to build an adequate retirement fund is unwise; employees need to realize that they must take responsibility for themselves and increase savings levels if necessary.
Take a Break
Ageless Wit and Observations
“If you don’t read the newspaper you are uninformed, if you do read the newspaper you are misinformed.”
I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle. – Winston Churchill
I don’t make jokes. I just watch the government and report the facts. – Will Rogers
Just because you do not take an interest in politics doesn’t mean politics won’t take an interest in you! – Pericles (430 B.C.)
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The information contained in this newsletter is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. For more 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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