2008 Tax Changes

Here is a brief rundown of 2008 tax changes.

* ADOPTION TAX CREDIT increases to $11,650 for adoption of an eligible child.

* SECTION 179 maximum deduction increases to $128,000. Phase-out threshold increases to $510,000.

* STANDARD MILEAGE RATE for business driving increases to 50.5¢ a mile. Rate for medical and moving mileage decreases to 19¢ a mile. Rate for charitable driving remains at 14¢ a mile.

* ESTATE TAX top rate remains at 45%, and the exemption amount remains at $2 million. The ANNUAL GIFT TAX EXCLUSION remains at $12,000.

* 401(k) maximum salary deferral remains at $15,500 ($20,500 for 50 and older).

* SIMPLE maximum salary deferral remains at $10,500 ($13,000 for 50 and older).

* IRA contribution limit increases to $5,000 ($6,000 for 50 and older).

* KIDDIE TAX threshold increases to $1,800 and now applies up to age 19 (up to age 24 for full-time students).

* NANNY TAX threshold increases to $1,600.

* TRANSPORTATION FRINGE BENEFIT limit increases to $115 for vehicle/transit passes and to $220 for qualified parking.

* SOCIAL SECURITY taxable wage limit increases to $102,000. Retirees under age 65 can earn up to $13,560 without losing benefits.

* HOPE CREDIT maximum increases to $1,800.

* HSA CONTRIBUTION limit increases to $2,900 for individuals and to $5,800 for families. An additional $900 may be contributed by those 55 or older.

*The AMT exemption amounts for 2007 are $66,250 for joint filers, $33,125 for couples filingseparately, and $44,350 for single taxpayers and headsof household.

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Free Tax Workshop - Business Entity Choice

On February 21, 2008 Peter B. Diaz, CPA will be presenting a free tax workshop on the tax aspects of common business entities. The workshop will cover Sole proprietors, Partnerships, LLCs, Corporations and S-Corporation. Tax advantages and disadvantages of each will be discussed. The Seminar will be held at the Cisco Entrepreneur Center/Small Business Administration (SBA) Center at 84 W. Santa Clara St. in Downtown San Jose. The Workshop is sponsored by the Internal Revenue Service and the SBA. Contact 408-494-0216 or www.ecenteronline.org to make your reservation. Peter can be reached at peter.diaz@diazconsulting.com. Visit his web site at http://www.diazconsulting.com.

Federal Tax Rules to be Aware of Going into 2008

Federal Tax Rules to be Aware of Going into 2008
(By Peter B. Diaz, CPA)

With 2007 rapidly coming to a close, below are some miscellaneous tax rules that may affect certain taxpayers in 2008. The list is not all-inclusive but intended to get taxpayers to start thinking about tax planning for 2008 and ways to reduce their tax burden.

Qualified taxpayers may elect to immediately expense, as a business deduction, up to $128,000 of assets placed in service during 2008. This avoids having to claim depreciation expense and a write-off of the cost over a long period of time.

The maximum contribution to Traditional and Roth IRA accounts increases to $5000 in 2008. Taxpayers who are at least age 50 in 2008 may make an additional $1000 contribution for a total of $6000. The maximum contribution to a 401(k) plan for 2008 is $15,500 and the maximum contribution to a defined contribution plan increases from $45,000 in 2007 to $46,000 in 2008. The limitation on SIMPLE retirement plans remains unchaged at $10,500.

Certain college age children may be subject to the “kiddie Tax” if their investment income exceeds certain limits. This will subject the child’s income to the parents tax rate.

Capital gains and qualified dividends continue to be taxed at a maximum rate of 15% through 2010. Capital gains and qualified dividends will be taxed at a Zero percent for individuals in the lowest ordinary income tax brackets (10% & 15%).

The top individual tax rate remains at 35%. Keep an eye on congress going forward.

Personal exemptions against income for yourself and each dependent will be $3500 in 2008. Standard deduction amounts are $10,900 doe married individuals filing joint returns; $8,000 for head-of-household; and, $5,450 for single individuals and married individuals filing separately.

Earnings subject to Social Security and Medicare Tax in 2008 will be based on the first $102,000 of earnings at a total tax rate of 15.3% (self employment tax rate, half that rate for employees). Earnings above the $102,000 base amount are only subject to Medicare Tax at a rate of 2.3% (for self-employed taxpayers; half that rate for employees).

The IRS standard mileage rate for business auto use is 50.5 cents in 2008 (up 2 cents from 2006).

When originally enacted, the Alternative Minimum Tax exemption amounts were not indexed for inflation. For the last few years congress has temporarily increase those amounts. In 2008, the Alternative Minimum Tax exemption remains at the prior lower levels if congress does not act to extend or adjust the increased exemption amounts. Many taxpayers will be subject to the Alternative Minimum Tax and have a higher tax burden.

You may qualify for a 30% Energy Credit if you purchased and installed any residential solar energy equipment in 2008. There are limitations.

Businesses involved in certain US manufacturing, construction and production activities may qualify to deduct 6% of the net income from such activities in 2008. The deduction is subject to certain net income limitations and wage limitations.

For 2008, an individual may make a gift of up to $12,000 to any person without having to file a gift tax return for the taxable year. There is no limit on the number of $12,000 gifts a person can make. Accordingly, an individual can make $12,000 gifts to ten different individuals for a total of $120,000 in gifts. No gift tax return would need to be filed.

Peter Diaz is a Tax Advisor in Redwood City and has been practicing tax consulting for over 23 Years. He can be reached at 650-400-2539 or through email at peter.diaz@diazconsulting.com. Visit his web site at http://www.diazconsulting.com/ .
The information contained herein is not intended as tax advice. To comply with requirements imposed by the IRS, any information contained in this communication cannot be used for the purpose of avoiding penalties under the Internal Revenue Code.

Kids Can Save You Taxes

YOUR KIDS CAN REDUCE YOUR TAXES AND GET RICH
(By Peter B. Diaz, CPA)

One often-overlooked tax benefit for business owners is putting their kids to work in their business.

If you are self-employed you can take advantage of this by paying your kids $4,000 each for performing services in your business. The business gets a tax deduction for the compensation and that saves taxes on the parent's tax return. Also, there is no Social Security or Medicare Taxes due on the wages you pay to your child.

The next step is to open a Roth IRA for the child and contribute the $4000 to the IRA. The child may not withdraw this money until age 59 1/2. The earnings and the amounts contributed grow tax-free and are generally never subject to tax when withdrawn. On the child’s tax return, the child gets no tax deduction for the IRA but the child may not pay tax on the $4000 if he or she is at a low enough level of income.

If you do this for 10 years, from age 8 to 18, and the IRA earns an 8% return each year, your child should have around $1.5 million at age 60 and that should grow to over $2 million by age 64.

If you plan to do this, consult with a professional tax advisor first and be sure your children are actually performing services for your business. Also, check that the work is not violating any child labor laws.

Peter Diaz is a Tax Advisor in Redwood City and has been practicing tax consulting for 23 Years. He can be reached at 650-400-2539 or through email at peter.diaz@diazconsulting.com. Visit his web site at www.diazconsulting.com .

The information contained herein is not intended as tax advice. To comply with requirements imposed by the IRS, any information contained in this communication cannot be used for the purpose of avoiding penalties under the Internal Revenue Code.