Beginning on Jan. 1, 2009, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
55 cents per mile for business miles driven
24 cents per mile driven for medical or moving purposes
14 cents per mile driven in service of charitable organizations
Source:IR-2008-131, Nov. 24, 2008
Thursday, November 27, 2008
Tax Year - 2009 Inflation Adjustments
- Value of each personal and dependency exemption, available to most taxpayers, is $3,650, up $150 from 2008.
- The new standard deduction is $11,400 for married couples filing a joint return (up $500), $5,700 for singles and married individuals filing separately (up $250) and $8,350 for heads of household (up $350).
- Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $67,900, up from $65,100 in 2008.
- The maximum earned income tax credit for low and moderate income workers and working families with two or more children is $5,028, up from $4,824. The income limit for the credit for joint return filers with two or more children is $43,415, up from $41,646.
- The annual gift exclusion rises to $13,000, up from $12,000 in 2008.
Source:IR-2008-117, Oct. 16, 2008
Wednesday, November 12, 2008
2008 Tax Information
Year 2008 has seen number of legislations such as the Economic Stimulus Act of 2008 (Stimulus Act), the Emergency Economic Stabilization Act of 2008 (H.R. 1424), Housing & Recovery Act all geared towards reviving and restoring the economy. There are several tax relief provisions emerging from these and other legislations which will affect your 2008 tax returns.
Below is the summary of some of the important changes for the 2008 tax year for your reference-
Increased IRA Contribution Limits - In 2008, the maximum IRA (traditional or Roth) contribution increases from $4,000 to $5,000. For taxpayers who reach age 50 before the end of 2008 can contribute another $1,000 as catch up contribution.
Higher Income Limits for Deductible IRAs and for Roth IRAs - If you are covered by a retirement plan at work, you can take a full IRA deduction if your modified adjusted gross income is less than $85,000 (married filing jointly) or $53,000 (single or head of household). A partial deduction is allowed until your adjusted gross income reaches $105,000 if you are married filing jointly or $73,000 if you are single or a head of household.
Contribution to a Roth IRA is now phased out as your modified adjusted gross income rises between $159,000 and $169,000 if you are married filing jointly or $101,000 to $116,000 if you are single or a head of household.
Tuition and Fees Deduction - The above-the-line deduction for up to $4,000 of qualified higher education expenses ($2,000 for higher-income taxpayers) is extended through Dec. 31, 2009. Educator Expenses - Above-the-line $250 deduction for out-of-pocket classroom expenses for teachers K–12 is extended through Dec. 31, 2009.
Personal Exemptions - For 2008, personal exemption is at $3,500.
Higher Standard Deductions - For 2008, the standard deduction for
Married filing a joint return is $10,950
Single filers is $5,450
Head of household is $8,050
Additional standard deduction for state & local property taxes - Taxpayers who do not itemize can claim an additional standard deduction for state and local real property taxes paid. The maximum deduction is $500 ($1,000 MFJ)
Reduction in long term capital gain & Dividend Tax Rates - 0% tax on net long term capital gain and qualified dividends for those taxpayers who are in the 10% -15% tax bracket.
Kiddie tax - will apply to children who are younger than 18, children who are 18 unless they provide more than half of their own support based on earned income, and children who are 19 to 23 and full-time students unless they provide more than half of their own support based on earned income.
Child Tax Credit - For 2008, a taxpayer whose tax liability is exceeded by the $1,000/child tax credit is entitled to a refundable tax credit of up to 15 percent of earned income in excess of $8,500.
Sales Tax Deduction -The choice to deduct state and local sales tax instead of state and local income tax on Schedule A is extended through Dec. 31, 2009.
First-time homebuyer credit - This is a refundable credit equal to the lesser of 10% of the purchase price of a home or $7,500 ($3,750 Married Filing Separately). This is effective for homes purchased by eligible first-time homebuyers after April 8, 2008, and before July 1, 2009. Eligibility for the credit phases out for modified AGI between $75,000–$95,000 ($150,000–$170,000 MFJ).
This is a disguised loan as the credit must be repaid in 15 equal installments starting in 2010. Repayment is accelerated if the home is sold or no longer used as a principal residence.
Discharge of Mortgage Indebtedness - Complete or partial discharge of a homeowner’s indebtedness on a qualified principal residence is not included in the gross income of a taxpayer. This provision is now applicable through January 1, 2013. This exclusion is not applicable in the case of Chapter 11 bankruptcy.
Modification to Section 121 exclusion - Sec 121 allowed for exclusion of $250,000($500,000 for married filing joint) if they owned and used the house as their primary residence for atleast 2 years in the 5 years immediately preceding the sale. This provision has not been modified and so gain on the sale of a principal residence allocated to a nonqualified use period (a period after Dec. 31, 2008, during which the home is not used as a principal residence of the taxpayer or spouse) is not excludable from gross income. This provision is effective for sales or exchanges on or after Jan. 1, 2009. An exception to this rule: Nonqualified use does not include the period after a home was last used as a principal residence. Taxpayers who are temporarily renting out their former principal residences until the home can be sold shouldn't be affected by this change.
Qualified Charitable Distributions -Taxpayers age 70 1/2 or older may contribute up to $100,000 tax-free from an IRA to a qualified charity. This transfer will be taken into account for meeting the required minimum distribution for the year. This provision has been extended through Dec. 31, 2009.
Nonbusiness Energy Property Credit -Note that this credit is not available for 2008 but has been reinstated for 2009. It's a credit of up to $500 for energy-efficient home improvements to a main residence. The credit is limited to 10% of the cost of building envelope improvements (insulation, exterior windows and doors, etc.) and qualifying heating and hot water equipment. In addition, qualifying home heating property (maximum $300 credit) is expanded to include energy-efficient biomass fuel stoves.
Energy Efficient Property Purchase Credit -Through 2017, a taxpayer may claim a credit for 30 percent of the purchase price of specific residential energy efficient property placed in service in a taxpayer’s residence. There is no longer a $2,000 limit on credit for qualified solar energy expenditures.
Section 179 deduction - The maximum Section 179 deduction for tax years starting in 2008 has been increased to $250,000. A phase-out of this amount starts when more than $800,000 of qualifying property is placed in service during the tax year. In addition, first-year additional 50% "bonus" depreciation is allowed for property placed in service in 2008.
Alternative Minimum Tax -The AMT exemption amounts are increased to $46,200 ($69,950 MFJ) up from 2007 amounts of $44,350 ($66,250 MFJ). Nonrefundable personal tax credits (e.g. child and dependant care credit, lifetime learning credits, credit for elective deferrals and IRA contributions) may be used to offset both the AMT and regular tax through the 2008 tax year.
Federal Disaster Relief provision provides for additional standard deduction for federally declared disaster losses in 2008–2012, Five-year net operating loss (NOL) carryback and Qualified Disaster Expense Deduction.
Below is the summary of some of the important changes for the 2008 tax year for your reference-
Increased IRA Contribution Limits - In 2008, the maximum IRA (traditional or Roth) contribution increases from $4,000 to $5,000. For taxpayers who reach age 50 before the end of 2008 can contribute another $1,000 as catch up contribution.
Higher Income Limits for Deductible IRAs and for Roth IRAs - If you are covered by a retirement plan at work, you can take a full IRA deduction if your modified adjusted gross income is less than $85,000 (married filing jointly) or $53,000 (single or head of household). A partial deduction is allowed until your adjusted gross income reaches $105,000 if you are married filing jointly or $73,000 if you are single or a head of household.
Contribution to a Roth IRA is now phased out as your modified adjusted gross income rises between $159,000 and $169,000 if you are married filing jointly or $101,000 to $116,000 if you are single or a head of household.
Tuition and Fees Deduction - The above-the-line deduction for up to $4,000 of qualified higher education expenses ($2,000 for higher-income taxpayers) is extended through Dec. 31, 2009. Educator Expenses - Above-the-line $250 deduction for out-of-pocket classroom expenses for teachers K–12 is extended through Dec. 31, 2009.
Personal Exemptions - For 2008, personal exemption is at $3,500.
Higher Standard Deductions - For 2008, the standard deduction for
Married filing a joint return is $10,950
Single filers is $5,450
Head of household is $8,050
Additional standard deduction for state & local property taxes - Taxpayers who do not itemize can claim an additional standard deduction for state and local real property taxes paid. The maximum deduction is $500 ($1,000 MFJ)
Reduction in long term capital gain & Dividend Tax Rates - 0% tax on net long term capital gain and qualified dividends for those taxpayers who are in the 10% -15% tax bracket.
Kiddie tax - will apply to children who are younger than 18, children who are 18 unless they provide more than half of their own support based on earned income, and children who are 19 to 23 and full-time students unless they provide more than half of their own support based on earned income.
Child Tax Credit - For 2008, a taxpayer whose tax liability is exceeded by the $1,000/child tax credit is entitled to a refundable tax credit of up to 15 percent of earned income in excess of $8,500.
Sales Tax Deduction -The choice to deduct state and local sales tax instead of state and local income tax on Schedule A is extended through Dec. 31, 2009.
First-time homebuyer credit - This is a refundable credit equal to the lesser of 10% of the purchase price of a home or $7,500 ($3,750 Married Filing Separately). This is effective for homes purchased by eligible first-time homebuyers after April 8, 2008, and before July 1, 2009. Eligibility for the credit phases out for modified AGI between $75,000–$95,000 ($150,000–$170,000 MFJ).
This is a disguised loan as the credit must be repaid in 15 equal installments starting in 2010. Repayment is accelerated if the home is sold or no longer used as a principal residence.
Discharge of Mortgage Indebtedness - Complete or partial discharge of a homeowner’s indebtedness on a qualified principal residence is not included in the gross income of a taxpayer. This provision is now applicable through January 1, 2013. This exclusion is not applicable in the case of Chapter 11 bankruptcy.
Modification to Section 121 exclusion - Sec 121 allowed for exclusion of $250,000($500,000 for married filing joint) if they owned and used the house as their primary residence for atleast 2 years in the 5 years immediately preceding the sale. This provision has not been modified and so gain on the sale of a principal residence allocated to a nonqualified use period (a period after Dec. 31, 2008, during which the home is not used as a principal residence of the taxpayer or spouse) is not excludable from gross income. This provision is effective for sales or exchanges on or after Jan. 1, 2009. An exception to this rule: Nonqualified use does not include the period after a home was last used as a principal residence. Taxpayers who are temporarily renting out their former principal residences until the home can be sold shouldn't be affected by this change.
Qualified Charitable Distributions -Taxpayers age 70 1/2 or older may contribute up to $100,000 tax-free from an IRA to a qualified charity. This transfer will be taken into account for meeting the required minimum distribution for the year. This provision has been extended through Dec. 31, 2009.
Nonbusiness Energy Property Credit -Note that this credit is not available for 2008 but has been reinstated for 2009. It's a credit of up to $500 for energy-efficient home improvements to a main residence. The credit is limited to 10% of the cost of building envelope improvements (insulation, exterior windows and doors, etc.) and qualifying heating and hot water equipment. In addition, qualifying home heating property (maximum $300 credit) is expanded to include energy-efficient biomass fuel stoves.
Energy Efficient Property Purchase Credit -Through 2017, a taxpayer may claim a credit for 30 percent of the purchase price of specific residential energy efficient property placed in service in a taxpayer’s residence. There is no longer a $2,000 limit on credit for qualified solar energy expenditures.
Section 179 deduction - The maximum Section 179 deduction for tax years starting in 2008 has been increased to $250,000. A phase-out of this amount starts when more than $800,000 of qualifying property is placed in service during the tax year. In addition, first-year additional 50% "bonus" depreciation is allowed for property placed in service in 2008.
Alternative Minimum Tax -The AMT exemption amounts are increased to $46,200 ($69,950 MFJ) up from 2007 amounts of $44,350 ($66,250 MFJ). Nonrefundable personal tax credits (e.g. child and dependant care credit, lifetime learning credits, credit for elective deferrals and IRA contributions) may be used to offset both the AMT and regular tax through the 2008 tax year.
Federal Disaster Relief provision provides for additional standard deduction for federally declared disaster losses in 2008–2012, Five-year net operating loss (NOL) carryback and Qualified Disaster Expense Deduction.
2009 Pension Plan Limits
IRS has announced the 2009 Pension plan limits.
Accordingly,
Accordingly,
- 401(k) or 403(b) Deferral Limit - $16,500 and Catch-Up Contribution Limit(Age 50 or older) - $5,500
- Simple IRA Account Deferral - $11,500 and Catch-Up Contribution Limit(Age 50 or older) - $2,500
- Maximum annual contribution to 401 (k) or SEP IRA - $49,000
- Maximum Compensation Limit - $245,000
Subscribe to:
Posts (Atom)