Tax Matters


Each year brings a host of new tax changes - and 2008 is no exception. Some of these changes occur automatically every year. For example, the personal exemption you claim is indexed annually for inflation. In 2008, the exemption is $3,500, up from $3,400 in 2007. Other changes, however, come from recent tax laws or new IRS regulations and rulings. This latter group tends to include the important changes. Below are outlined some of these changes, as well as other areas that may be interest.

Changes & Developments through the First Half of 2008 Tax Year
Some Articles of Interest
Alternative Minimum Tax
Portfolio Investments
Retirement Contributions
Health Savings Accounts
Charitable Contributions
Education Benefits
Deduction for Hybrid Vehicles
2008 Standard Mileage Rates
Year End Tax Planning

Changes & Developments ... 2008 Tax Year

Here is a quick look at just a few: Please contact my office if you would like to discuss these changes or want to find out about other changes that may affect your 2008 tax bill.

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Alternative Minimum Tax (AMT)

Households subject to the alternative minimum tax (AMT) pay an average of $2,770 more in taxes than other taxpayers.

The AMT system was established to limit the benefits you can receive from the favorable treatment of certain items, if you have substantial income and would otherwise be able to avoid paying taxes.

However, since the AMT is not adjusted for inflation, an increasingly larger pool of taxpayers, including a growing number of middle-income taxpayers, find themselves subject to this special tax. Some estimates indicate that as many as 17 million taxpayers will be subject to the AMT in 2010.

The AMT is a parallel tax system with more income items and fewer deductions. You have to pay the AMT if it's higher than your regular tax bill. See "Pending Legislation" above.

Please contact my office if you would like additional information.

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Portfolio Investments

If you have not recently reviewed your investment portfolio with your financial advisor, this would be a good time to do so in anticipation of year-end tax planning.

Taxpayers are still limited to a deduction of only $3,000 of capital losses per year. If you have large capital loss carryovers from prior years you may want to take advantage of gains, especially short-term, to offset these losses.

Investment decisions should be made in light of their inherent advantage, but also with an understanding of the tax consequences so that they are informed decisions.

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Retirement Contributions

For 2008, the contribution to a traditional IRA increases to $5,000. Those 50 and over can make an additional contribution of $1,000.

If your employer offers an elective deferral plan such as a 401(k) plan, consider maximizing your contribution, at least to the maximum amount matched by your employer. In 2008, the limit is $15,500 with an additional $5,000 for those 50 and older.

For the self-employed and owner-operated small business corporations, the SEP-IRA and Owner-401(k) plans allow for maximum contributions of $46,000 (earnings limitations and phase-outs apply in most cases).

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Health Savings Accounts (HSAs)

With the rise in costs of medical care and medical insurance, an increasing number of individuals are opening HSAs to manage medical expenses.

They are a fairly new option for health insurance and they have two parts. The first part is a health insurance policy that covers large hospital bills – also called a High Deductible Health Plan (HDHP). The second part of the Health Savings Account is an investment account or retirement account from which you can withdraw money tax-free for medical care.

Some of the benefits include: To qualify: Contributions for the current year can be made until April 15 of the following year. The maximum contributions are (for 2008):
$2,900 – Single coverage

$5,800 – Family coverage

$900 catch-up provision for 55 or over
For additional information, please contact my office.

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Charitable Contributions

The rules associated with charitable contributions became more stringent subsequent to the enactment of the Pension Protection Act of 2006. The new law contained numerous provisions affecting retirement plan participants. But it also contained many provisions having nothing to do with retirement plans. Some of these changes target deductions for charitable donations. See also "Some Articles of Interest" for further information.

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Education Benefits

Besides the Hope and Life Long Learning Credits there are a number of tax favored vehicles to save and pay for higher education. Follow this link to Education Benefits to view a comparison chart of the details of each option.

For further information or to make an appointment, please contact my office.

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Deduction for Hybrid Vehicles

For tax years 2005 and earlier, taxpayers were able to claim a one-time tax deduction of $2000 for the purchase of a new qualifying hybrid vehicle. Starting in 2006 the deduction was replaced with a credit, which requires a different certificate. Manufacturers provide the necessary documentation so that an individual can claim the credit.

However, when a manufacturer's sale of qualifying hybrid vehicles has exceeded 60,000, the credit is phased out over two calendar quarters. To see whether and to what extent a particular vehicle qualifies for the credit see the appropriate links under "Some Articles of Interest".

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2008 Standard Mileage Rates

1. Business
January 1 to June 30 – 50.5 cents/mile
July 1 to December 31 – 58.5 cents/mile
2. Charitable
remains at 14 cents per mile
3. Medical and moving
January 1 to June 30 – 19 cents/mile
July 1 to December 31 – 27 cents/mile
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Planning Strategies

It is our goal to assist our clients to achieve their financial and wealth planning objectives. We accomplish this by maintaining regular contact and review of plans and strategies.

Major financial decisions, such as purchase or sale of property, may have unanticipated tax consequences so to ensure optimum leverage of favorable tax regulations contact us to review options. A mid-year review of your plans, not to mention year end tax planning, is one way to proactively manage your financial affairs.

For further information or to make an appointment, please contact my office.

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