FEDERAL TAX NEWS
**New** Standard Mileage Rate for 2008
Due to the rising
gas prices, the IRS has increased the standard mileage rate for the final six
months of 2008. The rate has increased
to 58.5 cents a mile for all business miles driven from July 1, 2008 to
December 31, 2008. Medical and moving
miles have also increased by 8 cents to 27 cents a mile. For miles driven in service of charitable
organizations, the rate remains at 14 cents per mile.
For January 1, 2008
through June 30, 2008, the standard rate for the use of an automobile for
business was 50.5. For medical or moving
purposes the rate for 2008 is 19 cents per mile. For miles driven in service of charitable
organizations, the rate remains at 14 cents per mile.
**New** First-Time Homebuyer Tax Credit
On July 30, 2008,
President Bush signed into law the Housing and Economic Recovery Act of 2008. Under this act, first-time homebuyers are
entitled to a temporary refundable tax credit equal to 10 percent of the
purchase price of a home, up to $7500 ($3750 for married individuals filing
separately). The credit begins to phase
out for taxpayers with adjusted gross incomes over $75,000 ($150,000 for
married taxpayers filing jointly). The
taxpayer will claim the credit on their 2008 or 2009 tax return.
The credit is
effective for homes purchased between April 9, 2008 and July 1, 2009. Unlike other credits, this credit must be
repaid in equal installments over 15 years.
Repayments start two years after the year the residence is purchased.
If the residence is
sold before repaying the credit, the unpaid balance becomes due in the year it
is sold or no longer used as a principal residence.
**New** Property Tax Deduction for Non-Itemizers
Also under the new
Housing and Economic Recovery Act of 2008, non-itemizers have been given a
limited deduction for state and local property taxes by increasing the amount
of their standard deduction by the lesser of the amount of property taxes paid
during 2008 or $500 ($1000 for a married couple filing jointly). This deduction is only available for 2008.
**New** Reduced Home
Under the Housing
and Economic Recovery Act of 2008, gain from the sale of a principal residence
will no longer be excluded from gross income for the periods that home was not
used as the principal residence. This applies
for home sales after December 31, 2008 and is based only on nonqualified use
periods that begin on or after January 1, 2009.
The amount of gain allocated to periods of nonqualified use is
determined on a pro-rata basis.
**New** Economic Stimulus Payments
Under the Economic
Stimulus Act of 2008, more than 130 million American households will receive
economic stimulus payments beginning in May 2008. In order to receive the payment, you MUST
file a 2007 Federal Income Tax Return.
If you qualify for
the stimulus payment, it will automatically be sent to you. Taxpayers may be
entitled to payments of up to $600 ($1200 if married filing jointly) and $300
for each eligible child under 17 years old.
Payments will start
May 2, 2008. The last two digits of your
Social Security number and whether or not your opted
for direct deposit or paper check on your tax return will determine when you
receive your payment.
Taxpayers who filed
their tax return by April 15th should have received their payment by
now. If you have not received your
payment and believe you are entitled to, call the toll-free Rebate Hotline at
1-866-234-2942. If you filed after April
15th, it will generally take up to 8 weeks after you filed to get
your stimulus payment.
**New** IRS Rebate Scam Alerts
The IRS has
cautioned taxpayers to be on the lookout for scams involving proposed advance
payment checks or rebates. The IRS uses
information from the taxpayer’s tax return to process the stimulus payment and
does not contact the taxpayer by phone or e-mail for information. Also, the IRS does not send unsolicited
e-mail about tax account matters to taxpayers.
If you receive a
suspicious e-mail or telephone call that claims to have come from the IRS,
please notify the IRS of the scam at phishing@irs.gov.
**New** Kiddie Tax Changes
The kiddie tax imposes tax on a child’s investment income, such
as interest, dividends, and capital gains at the parent’s higher tax rate. The kiddie tax had
previously applied to investment income for children under age 14. The age has been raised for 2006 & 2007
to children under age 18 as of December 31st. The amount exempt from the kiddie tax was adjusted for 2006 & 2007 to $1700.
In 2008, the kiddie tax will be further expanded under the 2007 Small
Business Tax Act. Effective in 2008, the
kiddie tax will apply to all children under age 19
and students under age 24. This will not
apply to a child who is permanently and totally disabled. The amount exempt from the kiddie tax will increase to $1800 in 2008.
Vehicle Donations
Under the American
Jobs Creation Act of 2004, contributions of vehicles made to a charity after
December 31, 2004 will be limited to fair market value if the vehicle is used
by the charity, or the proceeds from the sale if the charity sells the
vehicle. This rule applies if the value
of the vehicle is more than $500.
If the value of the
car is more than $500, you must have written acknowledgement of the donation
from the organization & you must attach it you your tax return. The acknowledgement must be provided within
30 days of the sale of the car or if used by the charity, within 30 days of the
contribution.
If the value of the
car donated is greater than $5000, you must have a written appraisal by an
independent appraiser.
Social Security Wage Base for 2008
The Social Security
wage base will increase from $97,500 in 2007 to $102,000 for 2008. In 2008, the maximum employee deduction for
social security taxes is $6324 and for 2007 is $6,045.
Exemption Amount
The amount you can
deduct for each exemption will increase from $3,400 in 2007 to $3,500 in
2008. You lose all or part of the benefit
of your exemptions if your adjusted gross income is above a certain
amount. For 2007, the phaseout begins at $156,400 for single taxpayers and
$234,600 for married taxpayers filing jointly.
Reduction of Income Tax Rates
For 2007, the 10%
tax bracket has been increased to $7,825 for single taxpayers and to $15,650
for married taxpayers filing jointly.
Tax rates for other brackets have been lowered to 15%, 25%, 28%, 33%,
and 35% for individuals. This has been
extended to 2010 under the Working Families Tax Relief Act of 2004.
Capital Gains Rates
The maximum capital
gain tax rate was reduced under the Jobs and Growth Tax Relief Reconciliation
Act of 2003 from 20% to 15% for sales of long-term capital assets. For lower income taxpayers, the 10% rate was
reduced to 5%. These rates are effective
for sales and exchanges taking place before December 31, 2007. A 0% rate will replace the 5% rate for tax
years beginning after December 31, 2007.
Tax Rate on Dividends
The maximum tax
rate on dividends paid by corporations to individuals was reduced under the
Jobs and Growth Tax Relief Reconciliation Act of 2003 to 15% and to 5% for
lower income taxpayers. These rates are
effective for dividends received through December 31, 2007. For tax years beginning after 2007, the 5%
maximum tax rate on qualified dividends is reduced to 0%.
Child Tax Credit
Taxpayers can
reduce the federal income tax they owe by up to $1000 for each qualifying child
under age 17. The credit is limited if
your modified adjusted gross income is above $75,000 if single or $110,000 if
married filing jointly. If the amount of
your child tax credit is greater than the amount of income tax you owe, you may
be able to claim some or all of the difference as an “additional” child tax
credit.
Section 179 Expensing
Under the Small
Business and Work Opportunity Tax Act of 2007, taxpayers can expense up to
$125,000 of qualifying property for 2007.
This amount will double to $250,000 for 2008. The full amount is available for companies
putting up to $500,000 of assets in use during 2007 and $800,000 for 2008. The
expensing amount is reduced dollar-for-dollar when the cost of eligible
property put into service during the year exceeds $500,000 for 2007 and
$800,000 for 2008. This provision has
been extended to December 31, 2010.
Clean-Fuel Vehicle Deduction
The Energy Policy
Act of 2005 provides a credit for taxpayers who purchase certain energy
efficient vehicles, including Qualified Hybrid vehicles. The tax credit for hybrid vehicles applies to
vehicles purchased on or after January 1, 2006.
This credit replaces the clean-fuel burning deduction. The amount of the credit depends on the type
of vehicle and the energy efficiency.
The taxpayer may rely on the manufacturer’s certification that a specific
make, model & model year vehicle qualifies for the credit and the amount of
the credit for which it qualifies.
The full credit is
only available for a limited time. The
amount of the credit begins to phase out in the second calendar quarter after the
calendar quarter in which 60,000 of the manufacturer’s qualifying vehicles have
been sold. No credit is allowed after
the fifth quarter.
For the qualified
vehicles and credit amounts, visit the IRS website at http://www.irs.gov/newsroom/article/0,,id=157557,00.html
Tax Credits for Energy
Conservation Improvement
Under the National
Energy Plan, taxpayers would receive tax credits of up to $500 over two years
by improving the energy efficiency of their home. Making energy-conservation improvements such
as new doors & windows, insulation, and improved heating & cooling
systems in new and existing homes will qualify for the credit. This tax credit will be eligible for
improvements made during 2006 and 2007.
Increased Retirement Plan
Contribution Limits
The Economic Growth
& Tax Relief Reconciliation Act of 2001 increased the amount of
contributions that can be made to retirement plans, along with providing a
“catch-up provision” in addition to the regular contribution for participants
50 years or older.
The contribution
limits for retirement plans for 2007 are the following:
·
IRAs & Roth IRAs- $4,000 (plus $1000 catch-up provision, if eligible)
·
SIMPLE Plans- $10,500 (plus $2,500 catch-up provision, if eligible)
·
Qualified Retirement Plans (including 401(k), 403(b) and 457 plans)- $15,500
(plus $5,000 catch-up provision, if eligible)
·
SEP Plans- the lesser of 25% of total
compensation or $45,000.
The contribution
limits for retirement plans for 2008 are the following:
·
IRAs & Roth IRAs- $5,000 (plus $1000 catch-up provision, if eligible)
·
SIMPLE Plans- $10,500 (plus $2,500 catch-up provision, if eligible)
·
Qualified Retirement Plans (including 401(k), 403(b) and 457 plans)- $15,500
(plus $5,000 catch-up provision, if eligible)
·
SEP Plans- the lesser of 25% of total
compensation or $46,000.
If lower income
taxpayers make a contribution to a retirement plan, they may be eligible for a
credit of between 10 and 50% of their contribution.
“Where’s My Refund?”
If you have not
received your 2007 Federal Income Tax Refund yet, you can check the status of
the refund at the IRS’ website https://sa1.www4.irs.gov/irfof/lang/en/irfofgetstatus.jsp.
To get the refund
status, you will need to provide your social security number, filing status
& refund amount as it appears on your federal tax return.
Classification of Workers-
Employees vs. Independent Contractors
Most workers fall
into two categories- independent contractors or common-law employees. The main factor a business must use in
determining how to classify its workers is the degree of control the business
has over its worker. The more control
the business has over a worker the more likely it is that the worker is an
employee rather than an independent contractor.
The determination is based on all facts and circumstances of the
relationship the business has with the worker.
Businesses can use Publication 15-A from the IRS to help make that
determination. That publication can be
found at http://www.irs.gov/publications/p15a/ar02.html#d0e617.
If a business
incorrectly classifies an employee as an independent contractor, they can be
held liable for employment taxes for that worker, plus a penalty. There may be some relief for employers who
want to correct a previous misclassification of a worker. Guidance on this can
be found in IRS Headliner 152 at http://www.irs.gov/businesses/small/article/0,,id=155756,00.html.
New rules for Charitable
Donations
For 2007, in order
to be able to deduct any charitable donation of money, a taxpayer must have a bank
record or written communication from the charity showing the name of the
charity, the date of the contribution and the amount. Personal bank registers, diaries or notes are
no longer sufficient documentation to support charitable contributions.
Clothing and
household items donated to a charity after August 17, 2006 must be in “good
used condition or better” in order to be deductible. A single item valued at $500 or more may be
deducted, regardless of its condition if the return includes a qualified
appraisal.
For 2006 &
2007, IRA owners, age 70 ½ or over, can directly transfer tax-free up to
$100,000 per year to an eligible charitable organization. To qualify, the funds must be contributed
directly by the IRA trustee to the eligible charity. Transferred amounts are counted in
determining whether the owner has met the IRA’s minimum distribution
rules.
STATE
OF
**New** NJ Property Tax
Reimbursement – Deadline Extended to October 15, 2008
The Property Tax Reimbursement Program
reimburses eligible senior citizens and disabled persons for property tax
increases.
Eligible applicants must file the 2007 Property
Tax Reimbursement Application on or before October 15, 2008.
2007 Property Tax Reimbursement (PTR) checks
will begin being mailed out July 15, 2008 to applicants who filed before May 1,
2008. Applicants who filed between May
1, 2008 and June 2, 2008 will be sent reimbursement checks on or before
September 1, 2008. Applicants who filed
between June 2, 2008 and August 15, 2008, will receive their checks as their
applications are processed.
If you have any questions or want to check
the status of your reimbursement checks, you may call the Property Tax
Reimbursement Hotline at 1-800-882-6597.
**New** NJ
Tenants as of October 1, 2007 file rebate
application TR-1040 that is part of the NJ income tax return. If you requested an extension of time to file
your State income tax return, the filing deadline for your rebate application
is also extended.
Under the proposed Fiscal Year 2009 budget,
to be eligible for a rebate, taxpayers must own & occupy a home in NJ that
was their principal residence on October 1, 2007; have gross income for 2007 of
$150,000 or less; been subject to local property taxes & the property taxes
must have been paid.
Applications for
seniors or disabled homeowners were mailed out the end of April. Applications for all other homeowners are were
mailed out in July.
If you have not
received you application packet, you should call the Homestead Rebate Hotline
at 1-888-238-1233 for assistance.
Checks for senior
and disabled homeowners who filed their applications by the original deadline
of June 2nd were mailed in early August. Checks for applications received between June
2nd and October 15th will be issued as quickly as
possible.
Checks for eligible
nonsenior, nondisabled
homeowners who file their applications by the original August 15, 2008 deadline
are scheduled to be mailed in the fall.
Checks for applications filed between August 16th and October 15th
will be issued as quickly as possible, but may not be included in the initial
fall distribution.
Effective October 1, 2006, the
Effective July 15, 2006, the state sales tax
rate was increased from 6% to 7%. Under
new legislation, effective October 1, 2006, the law extended the sales tax to
new services and limits some previous exclusions and exemptions.
The following exemptions have been affected:
The exemption for
seller delivery charges that are separately stated from the purchase price has
been eliminated.
The exemption for
property installation services that constitute a capital improvement is eliminated
for landscaping and installation of flooring.
The exemption for
laundering, dry cleaning, tailoring, weaving, and pressing is now limited to
providing the services to clothing.
Effective October 1, 2006, sales tax has been
extended to the following services:
Furnishing
of space for storage
Tanning
services
Massage
services, unless medically prescribed
Tattooing
Investigation
services
Limousine
services originating in NJ, except with funeral services
Membership
fees
Parking,
storing, or garaging a motor vehicle
NJ Division of Taxation
Implements Referral Cost Recovery Fee
The Division of
Taxation began imposing a Referral Cost Recovery Fee. Where the Division uses an outside debt
collection agency to collect any state tax, a fee of 10% of the amount due will
be assessed to the taxpayer in addition to interest and penalties imposed.
NJ Sales and Use Tax Returns Now Paperless
The NJ Division of Taxation has phased out
the use of paper sales and use tax returns and requires all taxpayers to
electronically file and make payments through the NJ Sales and Use Tax EZ File
Systems. Businesses will no longer
receive ST-50/51 coupon booklets.
Taxpayers simply complete the EZ TeleFile Worksheet and either call 1-877-829-2866 or file online
at the Division of Taxation’s Web Site www.state.nj.us/treasury/taxation/. You will be prompted for the information from
the worksheet. There will be an
opportunity to pay the sales and use tax liability by electronic check at the
end of the phone call or during the online filing.
Beginning with the 2005 fiscal period, the
annual report will no longer be filed with the corporation’s tax return. Form CAR-100 has been eliminated. All annual reports must be filed and paid
electronically. The business formation
date will become the due date for filing.
If the annual report is not timely filed, the business entity could be
voided by the State of
Decoupling from IRS for Section 179 Expensing
For property placed in service on or after
January 1, 2004, the State of
New Jersey Corporation Business Surtax & Minimum Tax Changes
Under the new legislation, 4% surtax in
addition to the annual corporation tax will be charged to corporations. For periods ended on or after July 1, 2006
but before July 1, 2009, each taxpayer will be charged 4% surtax on the tax
liability of the corporation after credits.
Also under the new law, the minimum
corporation business tax shall be based on
New withholding requirements for construction contractors
Effective January 1, 2007, persons, other than
a governmental entity, homeowner or tenant, who maintain an office or transact
business in
OTHER
STATE TAX NEWS
On July 27, 2006, Governor Jeb Bush signed legislation repealing the annual Florida
Intangible Personal Property Tax. The
tax was repealed as of January 1, 2007.
If you have any questions or would like to
know how the new tax changes will affect you, please feel free to contact us at
973-927-7780.
Disclaimer
The information contained in this web site is
for general information purposes only, and is not intended to provide
professional tax advice. Please consult
your tax advisor, or someone from our office before making any decisions, to
determine how the tax law changes apply to your specific tax situation. Mills and DeFilippis, CPAs, LLP disclaims any
responsibility for any actions taken
by users.