Earlier this month, the President signed into law the Emergency Economic Stabilization Act of 2008. The financial markets rescue plan is one of the main components of the new law, but the new law also includes over 100 tax provisions!
Earlier this month, the President signed into law the Emergency Economic Stabilization Act of 2008. The financial markets rescue plan is one of the main components of the new law, but the new law also includes over 100 tax provisions!
HOW THE NEW LAW IMPACTS YOUR TAXES:
Here are a few of the highlights to help you determine how your taxes are impacted:
- Mortgage Forgiveness Debt Relief Act of 2007 Extended
This mortgage forgiveness law, enacted in late 2007, was originally set to expire at the end of 2009. The new law extends it through 2012. The law excludes from tax all or a portion of income resulting from the forgiveness of debt on a principal residence resulting from a foreclosure, mortgage workout, short sale or deed-in-lieu of foreclosure.
- AMT Patch
The AMT patch is intended to insulate middle-income taxpayers from AMT. The patch is only effective for 2008. Since the patch is currently only effective for 2008, it makes it even more important to consider the impact of it now on your overall tax strategy.
The patch allows the dependent care credit and education credits to be taken against AMT liability. Prior to this patch, these credits could not reduce the AMT liability.
The new law also provides some relief to those who are subject to AMT or have minimum tax credits from the exercise of incentive stock options.
- Child Tax Credit Improved
The new law lowers the earned income floor on which the refundable portion of the credit is calculated. The end result is a higher portion of the credit being refundable.
- Research Tax Credit Extended
The new law extends the research tax credit to amounts paid or incurred in 2008 and 2009. The new law also increases the credit percentage from 12% to 14%.
- Leasehold and Restaurant Improvements
Qualifying restaurant improvements and leasehold improvements are eligible for 15 year depreciation rather than 39 year for two more years through 2009. In addition, certain improvements to retail space are eligible for 15 year depreciation.
- State and Local Sales Tax Deduction Extended
Previous law allowed individuals to deduct state and local general sales taxes in lieu of state and local income taxes. This expired at the end of 2007. The new law makes the deduction retroactive for 2008 and continues the deduction through 2009.
- Tax-Free Distributions from IRAs for Charitable Purposes
The new law allows taxpayers to make tax-free distributions up to $100,000 from their IRAs for charitable purposes. This provision expired January 1, 2008 but the new law extends it through 2009.
- Additional Standard Deduction for Real Property Taxes Extended
Also extended through 2009 is the additional standard deduction amount allowed for real property taxes for those taxpayers who do not itemize.
- Higher Education Tuition Deduction Extended
The higher above-the-line education tuition deduction is extended through 2009. The maximum deductible amount is $4,000 for taxpayers with adjusted gross income less that $65,000 ($130,000 for joint filers) and $2,000 for taxpayers with adjusted gross income between $65,000 and $80,000 (between $130,000 and $160,000 for joint filers).
HERE'S WHAT YOU CAN DO RIGHT NOW TO MAKE SURE YOU ARE MAXIMIZING YOUR TAX BENEFITS:
- Year end tax planning
While minimizing your taxes is a year round activity, the time to do year end tax planning is approaching. Be sure to ask your CPA how you can benefit from the new tax law.
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