The kids are back in school, summer vacations are a fading memory and the fall elections are moving ever closer.
For a moment, let’s turn our attention to tax planning. I know, it’s not December and you have other things to do. Humor me.
You could reduce your taxes and will certainly reduce surprises at filing time.
If you haven’t already done so, let’s take care of your 2007 tax returns. The extended due date for most corporation returns is Sept. 15. Most 2007 partnership returns are due Oct. 15, the same date as your individual return.
For S corporation returns due during September. A new late filing penalty applies, accruing at $85 per shareholder, per month, up to a maximum of 12.
Some of your best small business tax savings strategies are as beneficial for 2008 as they were for 2007, but lawmakers have enhanced several provisions which can further reduce your taxes.
Under the Economic Stimulus Act of 2008, the Section 179 expensing deduction increased from $128,000 to $250,000 and the overall investment limit increased from $510,000 to $800,000.
This will allow most small businesses to take a full deduction for the cost of business machinery and equipment purchased during 2008, effectively reducing the current year cost for those assets.
Additionally, there is no Alternative Minimum Tax adjustment with respect to the property expensed.
Bonus depreciation, which previously was available after the 2000 and before the 2005 tax years, is back. Most businesses can take accelerated depreciation which allows a first-year deduction of 50 percent of the adjusted basis of qualified property if placed in service after Dec. 31, 2007, and before Jan. 1, 2009.
Bonus depreciation on most business vehicles is capped at $8,000 and is allowed for AMT purposes as well as for regular tax purposes.
Start your individual tax planning by calculating an estimate of your 2008 and 2009 tax liability. A lot of your tax-planning strategies involve shifting income or deductions from one year to the other. If you have an estimate of both years, you can determine which year will give you the best bang for your buck based on current law.
With the presidential election pending, you can expect tax law changes no matter which candidate wins.
Generally speaking, if your income will be about the same, accelerating deductions and deferring income is preferable. Also, there are a few new rules that you should consider when applying your long-standing strategies.
The Economic Stimulus Act of 2008 provided tax rebates of $600 for individuals and $1,200 for couples to a large segment of the population. For those who didn’t qualify to receive the rebate during 2008 because of the income level phase out (2007 adjusted gross income above $150,000), there is an opportunity to take a credit on their 2008 return if their 2008 income is below the threshold.
The Housing Assistance Tax Act of 2008, signed in to law on July 30, provides several tax breaks for homeowners, including an increase in the standard deduction for real estate taxes that would have otherwise not been deductible and a credit of up to $7,500 for certain first-time home buyers who purchase a home after April 8 and before July 1, 2009.
The Small Business and Work Opportunity Tax Act of 2007 broadened the definition of specified children who are subject to the “kiddie tax,” which taxes children’s unearned income at the parent’s higher rate. During 2008, the rules apply to children younger than 19 (24 if a full-time student), curtailing previous planning tactics that took advantage of lower capital gains rates.
As during 2007, our lawmakers have not agreed upon a change to the AMT.
Ken Majerus is tax manager at BiggsKofford P.C. He can be reached at 579-9090.