Time's running out to reduce your 2008 tax bill

 

Early fall is the perfect time to take stock of your
tax situation for the year. You have enough information to produce a reasonably close estimate of your 2008 income and deductions, and there's still enough time left before year-end to make some tax-saving moves.

Here are a few possible tax-savers to consider.

* Avoid tax underpayment penalties by adjusting your
income tax withholding over the remainder of 2008. Withholding is treated as having been paid in evenly over the full year.

* Review your investment portfolio for year-end  offsetting of gains and losses. Don't forget that you can apply up to $3,000 of net capital losses against  ordinary income such as wages.

* Make retirement plan contributions up to the maximum  allowed. That's $15,500 to a 401(k) and $10,500 to a   SIMPLE ($20,500 and $13,000, espectively, if you're   50 or older). This year's IRA limit increased from   $4,000 to $5,000 (to $6,000 if you're 50 or older).

* Remember that the "kiddie tax" now applies to you if   your child has unearned income over $1,800 this year   and is under age 19 (under age 24 if a full-time   student).

* You have until December 31 to take any required
  minimum distribution from your retirement plans. If  you just turned 70½ in 2008, you can postpone a first  distribution until next April 1, but then you'll have   to take two distributions in 2009. 

The tax law changes so frequently that you could miss opportunities if you don't invest a little time in an annual review of your tax situation. Call us NOW if you would like to get together to discuss your tax-cutting options.

Have you planned your business equipment purchases for this year?

 

Depreciation for 2008

Economic Stimulus for Business

If you're planning to purchase business equipment, be aware of these two depreciation rules: You can expense $250,000 worth of new or used equipment purchased for your business this year, and you can take 50% bonus depreciation on new equipment purchases.

You can use both breaks this year, and the two benefits can even be combined on the same purchase. For example, you can use the expensing option on a piece of equipment
and apply bonus depreciation to the remaining cost if the property qualifies. Off-the-shelf computer software qualifies for both tax
breaks.

Plan your Purchases  

Plan your Purchases   As you plan your acquisitions, remember that both 50% bonus depreciation and the increased expensing election are available only for 2008. Also, the expensing benefit phases out once your total equipment purchases for 2008 exceed $800,000. For details and help in best utilizing
these tax breaks, give us a call.

IRS pumps up standard mileage rates

Due to rising gas prices, the IRS has increased the
"standard mileage rate" for business drivers in 2008.

The standard mileage rate is an IRS-approved shortcut.
Instead of tracking all the actual business expenses of
your vehicle, you can use the prescribed flat rate for
the year. But you still must keep detailed records of
every business trip.

The new rate of 58.5¢ per business mile - up 8¢ per
mile - applies to travel during the last half of this
year. For the first half, the previous rate of 50.5¢ per
mile still applies. In addition, you may deduct any
business-related parking fees and tolls.

EXAMPLE: You drive 1,000 business miles a month in 2008.
Over the course of the year, you incur $500 in related
tolls. For the first six months, you can deduct $3,030
(50.5¢ x 6,000). For the last six months, the deduction
increases to $3,510 (58.5¢ x 6,000). When you add $500
in tolls, your deduction for 2008 equals $7,040 ($3,030
+ $3,510 + $500).

Note that the IRS also increased its standard mileage
rate for medical and job-related moving expenses from
19¢ a mile to 27¢ a mile for the last six months of this
year. However, the rate for charitable driving, which is
set by law, remains at 14¢ per mile.

Proceed carefully: The new mileage rates are available
to many - but not all - drivers. Give us a call if you
need details on how the changes affect your situation.

About Porter & Company, CPA's

The staff of Porter & Company have been practicing in the Dallas/Fort Worth metroplex for over 30 years. We are focused on meeting the demands of small to medium sized businesses as well as the individuals behind the business. We have an extensive practice area of tax and business solutions to bring cost effective results to you and your company.

How will the Presidential Election affect your Tax Bill?

Taxes are going up sooner or later--sooner if you're well-off and Democrats take the White House. Here's the canadiates positions and what actions you can take.

As president, Senator John McCain (R-Ariz.) aims to balance the budget while extending the Bush-era income tax cuts, doubling the personal exemption and eliminating the alternative minimum tax. The Democratic candidates say they'll raise taxes only on the well-off-those making over $200,000 for Senator Barack Obama (D-Ill) while showering tax breaks and health insurance on working families.

What about income taxes? A Democratic President is likely to return the top stated rate on ordinary income-salary and interest- to the 39.6% that Bill Clinton's presidency ended with.

That would put the real salary tax bite at around 50% if, as Obama has suggested, the 6.2% Social Security tax is applied to wages above the current $102,000 cap and two sneaky provisions make a comeback- the phaseout of personal exemptions and a haircut to itemized deductions. Under a Democrat, the top capital gains tax rate, now a historically low 15%, will likely rise to 28% or higher whereas McCain would keep taxes where they are and fight to reduce rates. Given the budget gap, even Republican McCain may well resort to closing loopholes and curbing deductions.

John McCain

Republican

Tax Proposals

Reduce top corporate tax rate from 35% to 25%

Allow First-Year Deduction, Or "Expensing", Of Equipment And Technology Investments for businesses

Calling for congress to suspend the federal gas tax (18.4 cents per gallon) from this Memorial day until Labor Day

Raise the personal exemption for each dependent from $3,500 to $7,000

Keep capital gains and dividend rates at 10/15%

Make the Bush income and investment tax cuts permanent

Ban internet and cell phone taxes

Permanently repeal the Alternative Minimum Tax.

Barack Obama
Democrat

Tax Proposals

Universal Mortgage Credit - 10% credit, refundable

American Opportunity Tax Credit: create universal and refundable credit for first $4,000 of a college education, tax credit available at time of enrollment

Increase capital gains to 10/20 or 10/28%

Crack down on offshore tax havens, create an International Tax Evasion Watch List;

Eliminate special interest loopholes and deductions, limit the ability of large multi-national corporations to use tax havens to hide income overseas

Repeal tax cuts those making over $200,000 or $250,000, restore PEP and Pease phaseouts for households making more than $250,000, restore 36 and 39.6% statutory income tax rates

Social Security/payroll taxes: increase the maximum amount of earnings covered by Social Security

Tax-Planning Ideas

None of this is cause for panic, but with higher taxes on the horizon it does make sense to prepare now.
1) Contribute to a Roth. A Roth Individual Retirement Account or Roth 401(k) can be a great hedge against higher rates. You put in aftertax dollars, the money grows untaxed and all withdrawals in retirement are tax free.
2) Do a Roth conversion. This strategy involves taking money out of a traditional IRA, declaring the taxable income and depositing it in a Roth, where all future growth is tax free. Only taxpayers with gross income below $100,000 are eligible, but that limit will end in 2010-unless Congress reneges.
3) Relocate assets. Investors may have been lulled into complacency over capital gains taxes in the three years through 2005 as their mutual funds used losses booked over the previous couple of years to offset gains. The holiday's over. Last year funds distributed $393 billion in long- and short-term gains to taxable shareholders, up 270% from 2005, estimates Thomas Roseen, a senior analyst at Lipper.
4) Buy munis. If you're in a high tax bracket, tax-exempt municipal bonds are a buy, says Robert Gordon, president of Twenty-First Securities. While off their peak of this year, muni yields are still high relative to Treasurys, even at current tax rates (see story). Avoid private purpose bonds-the kind whose income is taxable in the AMT. Vanguard, which offers some of the lowest-cost funds around, eliminated most of these bonds from its muni funds last year.

Simplify your life: Organize your tax records

Did you spend hours pulling together your tax records
in preparation for filing your 2007 tax return? It
doesn't have to be that way. Avoid the problem next
year by taking a few simple steps now.

FIRST, DECIDE WHAT RECORDS...you need to keep for the current year. Generally speaking, you'll need records of income items and deductible expenses. Use your 2007 tax return as a guide.

* YOU'LL ALSO NEED TO KEEP SOME ITEMS for longer
periods. For example, you may need purchase records
for your house and other investments years later to
calculate your capital gains.

* SET UP A FILING PLACE for each category. Use folders
or plastic pouches for paper records, such as
charitable receipts, property tax payments, and
mortgage reports.

* IF YOU MANAGE YOUR BANKING AND FINANCES ONLINE,

open up a series of folders on your hard drive. Save
copies of electronic statements or transaction
receipts in the relevant folder. Remember to make
regular data backups.

* THEN STAY CURRENT with your records as you go through
the year. It's easier to spend a few minutes each
month than to have to spend hours reconstructing
everything at the end of twelve months.

* AT THE END OF EACH MONTH, highlight income and deduction items in your check register. Use one color for charitable contributions, another for work
expenses, and so on. You can do this whether you keep your register on paper or on a computer. Make sure any associated receipts are filed away correctly.

* AT YEAR-END, you should know exactly what falls into
each category and where the records are.

Remember, the better your recordkeeping, the better your
chances of maximizing tax breaks. If you have questions
about the records you need to keep, give us a call.

Buying or Selling a Business

For the purchase of a business to be successful, there can be no room for surprises. A review of the business being acquired needs to be done to determine if there is anything that should be known before the deal takes place.

This checklist provides an outline of the types of documentation and infromation that should be reviewed. Of course each business is different so every industry will have its own peculiarities.

Sample Due Diligence Checklist

1. Corporate Documents

• Copies of incorporation, bylaws, and shareholder agreements
  
  
  
• Stock ledgers, including information on all outstanding stock

2. Contracts and agreements

• Recent copies of all employment , consulting, and compensation contracts, agreements, plans, and programs.
  
  
  
• Recent copies of all retirement plan documents
  
  
  
• Copies of all noncompete agreements
  
  
  
• Details on all related-party receivables or payables
  
  
  
• Details on any (prior) owners who have left company within last five years

3. Customer matters

• List of customers lost in the last three years, customer billing and reason for loss
  
  
  
• For the last three years, a list of the top ten current customers in revenues, percent of standard, nature of services, and how long with company
  
  
  
• List of top ten new customers and their current status with company in terms of billing, receivables, and satisfaction
  
  
  
• List of major proposals that are outstanding, including budgeted standard and fee quoted.
  
  
  
• List of aged accounts receivable.

4. Reputation and litigation

• Files on any known or anticipated litigation
  
  
  
• Copies of all correspondence pertaining to litigation matters.
  
  
  
• Inquiries of local sources on company reputation.

5. Company Stability

• Owners - List of all owners who left in the last five years and the circumstances behind the departure
  
  
  
• Staff - List of managers and other key employees who have left in last three years and any loss in company revenue due to loss

6. Insurance coverage

• Copies of all current insurance polices
  
  
  
• Copies of all recent correspondence from insurance companies

7. Credit and related documents

• Copies of all agreements, bank lines of credit, and other debt obligations
  
  
  
• Copies of all material financing documents, such as capitalized leases and installment transactions
  
  
  
• Copies of all material guarantees, indemnification or loans
  
  
  
• Credit and reference checks on all owners

8. Real estate

• Copies of all deeds, mortgages, title policies on property owned
  
  
  
• Copies of all leases
  
  
  
• Copies of all insurance polices related to property owned

Buying and selling a business should always be reviewed with us before committing to a deal as there are always tax consequences to be considered. We have extensive experience in helping clients with the due diligence on both the buy and sell side of the transaction.

FAQ's on Tax Rebate's

 

As rebate bill heads to Bush's desk, time to talk numbers

The Associated Press

Congress passed an economic-stimulus plan last week that provides rebates.

Who gets a rebate?

Anyone who pays taxes or earns at least $3,000 (including Social Security or veterans' disability benefits), with income-cap limitations.

Who doesn't get one?

People earning less than $3,000; illegal immigrants; singles earning more than $75,000; and couples earning more than $174,000. The caps rise by $6,000 per child.

What do you have to do to get the rebate?

File a 2007 tax return with a Social Security number for each person listed.

How much is the rebate?

Singles get a rebate of at least $300; couples get at least $600. The rebate will be equal to the taxes paid, up to $600 for singles and $1,200 for couples (plus $300 additional per child). The rebate will be cut by $50 for every $1,000 above the income cap of $75,000 for singles and $150,000 for couples.

Should you have any questions about the tax rebates or if you qualify please feel free to contact our office for more information. As always please contact us with any tax, accounting, or financial questions you may have.