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Highlights of 2008 Tax Law Changes: Tax Breaks Renewed, Recovery
Rebate Credit, Homeowner Relief

FS-2009-1, January 2009

AMT exemptions rise; several expiring deductions and credits get a new
lease on life; a new standard property tax
deduction and a special first-time homebuyer credit are available to
some homeowners; and retirement savings incentives
expand. These are among the changes taxpayers will find when they fill
out their 2008 tax returns. More information about
these and other changes, summarized below, can be found on IRS.gov and
in various IRS documents, including the Instructions
for Form 1040.

Economic Stimulus Payments Tax Free

Economic stimulus payments are not taxable, and they are not reported
on 2008 tax returns. However, the stimulus payment does
affect whether a taxpayer can claim the Recovery Rebate Credit and how
much credit he or she can get. The credit is figured like
last year's economic stimulus payment except that the amounts are
based on tax year 2008 instead of 2007. A taxpayer may qualify
for the Recovery Rebate Credit if, for example, she did not get an
economic-stimulus payment or had a child in 2008. See Fact Sheet
2009-3 for details. In most cases, the IRS can figure the credit. The
instructions for Forms 1040, 1040A and 1040EZ have more information.

AMT Exemption Increased for One Year

For tax-year 2008, Congress raised the alternative minimum tax
exemption to the following levels:

$69,950 for a married couple filing a joint return and qualifying
widows and widowers, up from $66,250 in 2007
$34,975 for a married person filing separately, up from $33,125 and
$46,200 for singles and heads of household, up from $44,350
Under current law, these exemption amounts will drop to $45,000,
$22,500 and $33,750, respectively, in 2009. Form 6251 and the AMT
Calculator provide more information.

Expiring Tax Breaks Renewed

Several popular tax breaks that expired at the end of 2007 were
renewed for tax-years 2008 and 2009. As a result, eligible taxpayers
can claim:

The deduction for state and local sales taxes on Form 1040 Schedule
A , Line 5
The educator expense deduction on Form 1040, Line 23 or Form 1040A,
Line 16
The tuition and fees deduction on Form 8917 and
The District of Columbia first-time homebuyer credit on Form 8859
In addition, the residential energy-efficient property credit is
extended through 2016. In general, solar electric, solar water heating
and fuel cell
property qualify for this credit. Starting in 2008, small wind energy
and geothermal heat pump property also qualify. Use Form 5695 to claim
the credit.

The non-business energy property credit for insulation, exterior
windows, exterior doors, furnaces, water heaters and other energy-
saving improvements
to a main home is not available in 2008 but will return in 2009.

Standard Deduction Increased for Most Taxpayers

Nearly two out of three taxpayers choose to take the standard
deduction rather than itemizing deductions such as mortgage interest
and charitable contributions.
The basic standard deduction is:

$10,900 for married couples filing a joint return and qualifying
widows and widowers, a $200 increase over 2007
$5,450 for singles and married individuals filing separate returns, up
$100 and
$8,000 for heads of household, up $150
Higher amounts apply to blind people and senior citizens. The standard
deduction is often reduced for a taxpayer who qualifies as someone
else’s dependent.

New this year, taxpayers can claim an additional standard deduction,
based on the state or local real-estate taxes paid in 2008. Taxes paid
on foreign or business
property do not count. The maximum deduction is $500, or $1,000 for
joint filers.

Also new for 2008, a taxpayer can increase his standard deduction by
the net disaster losses suffered from a federally declared disaster. A
worksheet is available
in the instructions for Forms 1040 and 1040A.

First-Time Homebuyer Credit

Those who bought a main home recently or are considering buying one
may qualify for the first-time homebuyer credit. Normally, a taxpayer
qualifies if she didn’t own
a main home during the prior three years. This unique credit of up to
$7,500 works much like a 15-year interest-free loan. It is available
for a limited time only –– on
homes bought from April 9, 2008, to June 30, 2009. It can be claimed
on new Form 5405 and is repaid each year as an additional tax. Income
limits and other special
rules apply.

Tax Relief for Midwest Disaster Areas

Special tax relief related to severe storms, tornadoes or flooding,
occurring after May 19, 2008, and before Aug. 1, 2008, is available to
individuals in portions of Arkansas,
Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri,
Nebraska and Wisconsin that were affected by these disasters. Tax
benefits include:

Liberalized rules for certain personal casualty losses and charitable
contributions
An additional exemption amount for persons who provided housing for
someone displaced by these disasters
The option to use 2007 earned income to figure a 2008 earned income
tax credit (EITC) and additional child tax credit
An increased charitable standard mileage rate for use of personal
vehicle for volunteer work related to these disasters
Special rules for withdrawals and loans from IRAs and other qualified
retirement plans
Details on these and other relief provisions are in Publication 4492-
B  .

Contribution Limits Rise for IRAs and Other Retirement Plans

This filing season, more people can make tax-deductible contributions
to a traditional IRA. The deduction is phased out for singles and
heads of household who are
covered by a workplace retirement plan and have modified adjusted
gross incomes (AGI) between $53,000 and $63,000, compared to $52,000
and $62,000 last year.

For married couples filing jointly, in which the spouse who makes the
IRA contribution is covered by a workplace retirement plan, the income
phase-out range is $85,000
 to $105,000, up from $83,000 to $103,000 last year.

Where an IRA contributor who is not covered by a workplace retirement
plan is married to someone who is covered, the deduction is phased out
if the couple’s income
is between $159,000 and $169,000, up from $156,000 and $166,000 in
2007.

The phase-out range remains $0 to $10,000 for a married individual
filing a separate return who is covered by a retirement plan at work.

The worksheet in the instructions for Form 1040 Line 32 or Form 1040A
Line 17 can help a taxpayer figure the IRA deduction.

For 2008, the elective deferral (contribution) limit for employees who
participate in 401(k), 403(b) and most 457 plans remains unchanged at
$15,500. This limit rises to
$16,500 in 2009. The catch-up contribution limit for those aged 50 to
70-½ remains at $5,000 in 2008 but rises to $5,500 in 2009.

The AGI phase-out range for taxpayers who contribute to a Roth IRA is
$159,000 to $169,000 for joint filers and qualifying widows and
widowers, compared to $156,000
 to $166,000 in 2007. For singles and heads of household, the
comparable phase-out range is $101,000 to $116,000, compared to
$99,000 to $114,000 in 2007.

Standard Mileage Rates Adjusted for 2008

The standard mileage rate for business use of a car, van, pick-up or
panel truck is 50.5 cents per mile from Jan. 1, 2008, to June 30,
2008, up 2 cents from 2007. The rate
 is 58.5 cents for each mile driven during the rest of 2008.

From Jan. 1, 2008, to June 30, 2008, the standard mileage rate for the
cost of operating a vehicle for medical reasons or as part of a
deductible move is 19 cents per mile,
 down a penny from 2007. The rate is 27 cents from July 1 to Dec. 31.

The standard mileage rate for using a car to provide services to
charitable organizations is set by law and remains at 14 cents a mile.
As noted earlier, special rates
apply to the Midwest disaster area.

Exemptions Rise

The value of each personal and dependency exemption is $3,500, up $100
from 2007. Most taxpayers can take personal exemptions for themselves
and an additional
exemption for each eligible dependent. An individual who qualifies as
someone else’s dependent cannot claim a personal exemption, and though
personal and dependency
exemptions are phased out for higher-income taxpayers, the phase-out
rate is slower than in past years.

This is one of more than three dozen individual and business tax
provisions that are adjusted each year to keep pace with inflation. A
complete rundown of these
changes can be found in 2008 Inflation Adjustments Widen Tax Brackets,
Change Tax Benefits.

Earned Income Tax Credit Rises

The maximum earned income tax credit (EITC) is:

$4,824 for people with two or more qualifying children, up from $4,716
in 2007
$2,917 for those with one child, up from $2,853 last year and
$438 for people with no children, up from $428 in 2007.
Available to low and moderate income workers and working families, the
EITC helps taxpayers whose incomes are below certain income
thresholds, which in 2008
rise to:

$41,646 for those with two or more children
$36,995 for people with one child and
$15,880  for those with no children
One in six taxpayers claim the EITC, which, unlike most tax breaks, is
refundable, meaning that individuals can get it even if they owe no
tax and even if no tax is
withheld from their paychecks.

Taxes Lowered for Many Investors

The five-percent tax rate on qualified dividends and net capital gains
is reduced to zero. In general, this reduction applies to investors
whose taxable income is below:

$65,100, if married filing jointly or qualifying widow or widower
$32,550, if single or married filing separately or
$43,650, if head of household.
Note that taxable income is normally less than total income. The
worksheet for Form 1040 Line 44, Form 1040A Line x or Schedule D and
its instructions provide details.

Kiddie Tax Revised

The tax on a child's investment income applies if the child has
investment income greater than $1,800 and is:

Under 18 old
18 years of age and had earned income that was equal to or less than
half of his or her total support in 2008 or
Over 18 and under 24, a student and during 2008 had earned income that
was equal to or less than half of his or her total support.
Previously, the tax only applied to children under age 18. Form 8615
is used to figure this tax.

Self-Employment Tax Changes

For those who receive Social Security Retirement or disability
benefits, any Conservation Reserve Program (CRP) payments are now
exempt from the 15.3-percent
social security self-employment tax. Schedule SE and its instructions
and Publication 225, Farmer’s Tax Guide, have the details.

More farmers and self-employed people this year can choose the
optional methods for figuring and paying the self-employment tax.
These optional methods allow those
with net losses or small amounts of business income a way to obtain up
to four credits of Social Security coverage. The income thresholds for
both the farm optional
method and the nonfarm optional method are increased for 2008 and
indexed for inflation in future years. Choosing an optional method may
increase a taxpayer’s
self-employment tax but it may also qualify him for the earned income
tax credit, additional child tax credit, child and dependent care
credit or self-employed health
insurance deduction. Schedule SE and its instructions have details.

www.richard.bonilla.com














On Dec 15 2008, 10:24 am, "~^ beancounter ~^" <richboni...@gmail.com>
wrote:
> I can help you make use of recent tax law changes for 2008. IRS Fact
> sheet FS-2008-26 provides numerous tax tips and links to an English
> and Spanish podcast that provides useful year-end tax planning
> information.
>
> And remember....if you make year-end contributions to charity, keep in
> mind several important tax law provisions that have taken effect in
> recent years. Details are in IRS news release IR-2008-138. Remember
> that Dec. 31 is the last day for most of these actions to occur...
>
> Contact me for additional information and services....
>
> cheers
>
> Richardwww.richard.bonilla.com

Greetings...a special tax bennie for folks who purchased a home
in 2008.....as long as a few simple points are "met"...the IRS is
giving out a $7,500 % free loan (over a 5 year period) for new
homeowners, with w-2 income...I can do your tax return and show
you this one...cheers...

www.richard.bonilla.com
tax & accounting services / front range

Things to Know - Before You File Your 2008 Tax Return
If you haven’t had your taxes started by now, maybe you are still
trying to decide how you will go about getting them done.

Filing your tax return properly will usually result in a sizable tax
refund. There are number of ways to file tax return without crawling
through the forms or even hiring a tax professional. When your
adjusted gross income or types of reportable activities exceed certain
level it is always advisable to consult a tax guru.

1) Free Tax Preparation Software – Careful:

Not all “Free tax preparation software” or “prepare your tax return
free” – sites let you print and file your return for free. Some sites
allow you to prepare, e-file, or print your return for free on their
own website only.

“Downloading software and preparing the return is more secure way than
uploading your personal data on unknown website”-Taxguru said.

IRS offers Free File, which may be a fast, free and easy way to
prepare and file a tax return, if adjusted gross income is $56,000 or
less for 2008. Free tax preparation is available through the Volunteer
Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE)
sites in many communities. Income limit may apply.

2) Helpful Hints When Choosing a Return Preparer / Tax Guru:

• Be cautious of tax preparers who claim they can obtain larger
refunds than other preparers.
• Avoid preparers who base their fee on a percentage of the refund.
• Consider whether the individual or firm will be around to answer
questions about the preparation of the tax return months, or even
years, after the return has been filed.
• Check the person’s credentials. Only attorneys, certified public
accountants (CPAs) and enrolled agents can represent taxpayers before
the IRS in all matters, including audits, collection and appeals.
Other return preparers may only represent taxpayers for audits of
returns they actually prepared.
• Find out if the preparer is affiliated with any professional
organization.
• Ask friends and family whether they know anyone who has used the tax
professional and whether they were satisfied with the service they
received.
Reputable preparers will ask to see receipts and will ask multiple
questions to determine whether expenses, deductions and other items
qualify. By doing so, they are trying to help their clients avoid
penalties, interest or additional taxes that could result from an IRS
examination.


3) Preparing Return Yourself:

If you are preparing the return your self, make sure your return is
mistake proof. Most common mistakes include: wrong SSN, address and
names of taxpayer, spouse or dependent. Wrong filing status, math
error, missing personal information on the payment check, not
attaching required forms including W-2 and schedules and forget to
sign and date.

Filing an extension by April 15, may not avoid penalties. You need to
pay taxes due by that day, if you owe.

You may also check your 2008 refund online using Where’s My Refund? 72
hours after IRS acknowledges receipt of an e-filed return or three to
four weeks after a return is mailed.

Record keeping is very important. Keep your returns and supporting
documents for a minimum 3 years from date of filing return. The
statute of limitations for IRS audit is 3 years unless you under
reported your income by more than 25%, where limitation is 6 years. No
such limitation applies if matter is related to tax fraud or if you
fail to file your tax returns. Though it is not required, you should
keep all your tax returns and W-2 for your life. Contributions to your
retirement accounts and annual statement from nondeductible IRA should
be maintained for life as well. Basis of stock / mutual funds
purchased should be kept for at least until 3 years after the stock is
sold. Title deed, purchase or mortgage agreement, sales contract and
receipts of capital improvements should be kept in safe as well.

4) Where to Look for Help:

Many websites provide free tax information. But you should be careful
as to who are you asking to for your help. If a website / tax portal
is supported by only one preparer (like most websites), then the
chances are that the preparer might be soliciting you for his
business. Now, practically all information can be found online. You
can ask any of your tax questions free on Tax forum and get answer
from several tax gurus anywhere in US. You can find free tax info,
tables / charts, news on TaxGuruHelp.com.

IRS.Gov is available 24/7 with all information, forms and
publications. Publication 17 and 1040 instructions are handy tools and
can answer most of your questions.

5) Additional Tips:

Every dollar of your taxable income is not necessarily taxed at the
same rate.

If you get a big refund each year, probably you’re having too much
withheld from your paycheck or your estimated tax payments are too
high. It is like giving the IRS an interest free loan! Use IRS
Withholding Calculator, which help taxpayers to make sure the amount
of income tax withheld from their pay is not too high or too low.

You can manage your chances of being audited!

Any information that you receive, is also sent to IRS including W-2,
sale of stock and all 1099’s, and 1098’s. Double check the amounts on
return ties to respective forms.

Tax planning should start when your short term and long term
investment decisions are made and not when you sit to prepare your tax
return.

You might be surprised how much each tax credit, tax break or tax
deduction can add up to over years. Subscribe here to get free tax
tips or news delivered in your email once every week. Daily tax tips
for 2009 might be worth reading as well.

Hope this helps!

Richard


www.richard.bonilla.com
tax & accounting services / front range