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 Sale Exclusion

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 NJ TAX NEWS

**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 Homestead Rebate- Deadline Extended to October 15, 2008

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.

New Jersey Minimum Wage

Effective October 1, 2006, the New Jersey minimum wage was increased from $6.15 per hour to $7.15 per hour.

New Jersey Sales & Use Tax

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.

New Jersey Annual Reports Now Paperless

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 New Jersey.

Decoupling from IRS for Section 179 Expensing

For property placed in service on or after January 1, 2004, the State of New Jersey decoupled from the IRS on the amount permitted to be deducted as an expense for New Jersey taxes under IRC Section 179.  The maximum deduction allowed by the State of New Jersey is $25,000 under Section 179.

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 Jersey gross receipts.  The new minimum tax ranges from $500 for gross receipts of less than $100,000 to $2000 for gross receipts of a million dollars or more.

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 New Jersey, must withhold NJ Gross Income Tax of 7% of payments made to unregistered, unincorporated construction contractors.  Withholding is not required if the person making the payments has obtained proof from the contractor of their registration with the Division of Revenue.

OTHER STATE TAX NEWS

Florida Intangible Personal Property Tax Repealed

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.