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


Here is a quick look at just a few:

• Economic stimulus payments – Over 100 million checks have been sent out by the Treasury, but millions have not filed 2007 returns critical to claim payment. This is especially true of seniors and disabled veterans who, as a rule, do not need to file.
• Personal Exemptions and Itemized Deductions - The tax rules phase out the personal exemptions and itemized deductions of high-income taxpayers. This phase out was scaled back beginning in 2006 and will be further scaled back in 2008. Thus you may be able to deduct more of your personal exemptions and itemized expenses than in the past.
• Education Expenses - Families with college expenses lose one of their tax breaks in 2008 – the up-to-$4000 deduction for tuition and fees. However, other education-related tax benefits, such as the Hope tax credit, remain in place. See "Pending Legislation" below.
• Alternative Minimum Tax - Your chances of getting hit with the alternative minimum tax (AMT) have increased. See "Pending Legislation" below and for more information on the AMT.
• Tax gap – IRS advises that the difference between what taxpayers owe and what they pay (the "tax gap") is over $300 billion. In an effort to close the gap the IRS has substantially increased its enforcement efforts. See "Some Articles of Interest" for further information.
• Pending Legislation – Congressional debate continues on the "extenders bill" to extend temporary tax cuts. Some of the items under consideration include the exemption for the alternative minimum tax, state and local sales tax deduction, $4000 deduction for education expenses, and employer tax breaks. The House also wants to expand the refundable child tax credit. Current law provides a credit refund up to 15% of the taxpayers earned income in excess of $10,000 floor. The bill reduces the floor to $8,500 for 2008.
• Depreciation – Congress approved a one year 50% bonus depreciation for certain assets placed in service during 2008. For additional information see "Some Articles of Interest" for further information.
• First-time homebuyer tax credit – The credit is essentially an interest-free loan. Taxpayers who take the credit, 10% of the purchase price (up to $7,500 for singles and married couples filing jointly; $3,750 for married individuals filing separately), must repay the credit but in payments over a 15 year period. But, if the home is sold before the end of the 15 years, the outstanding balance could be due immediately. Income thresholds apply. The credit is only in effect from April 9, 2008 through June 30, 2009. For additional information please contact our office.
• Property deduction for non-itemizers – This is a new property deduction if you do not itemize. Before this law only itemizers could deduct property taxes. Now, non-itemizers who own property can increase the amount of their "standard deduction" by the lesser of the property taxes paid or $500 maximum ($1,000 for married couples filing jointly). This change only applies for taxes paid in 2008.
• North Carolina Gift Tax repealed – Governor Easley signed into law a complete repeal of the NC Gift Tax, effective January 1, 2009. The NC Gift Tax lifetime exclusion was much less than the federal amount. This may represent significant savings – consider revisiting your current gift and estate planning strategies.
• North Carolina's National College Savings Program – Taxpayers can receive a deduction (up to $2,500 for individuals and $5,000 for married taxpayers filing jointly) for contributions to the program, also known as the NC 529 Plan.

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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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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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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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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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:

• Contributions to the account are deductible
• Earnings are tax-free
• If offered through an employer, it is portable
• The balance in the account can be carried over to the next year
• You can pay your long-term care premiums from the account

To qualify:

• You must have a HDHP health plan (deductibles of at least $1,100 for individual and $2,200 for family plans).
• May not be covered under any other non-HDHP health plan
• May not be entitled to Medicare benefits
• Cannot be claimed as a dependent of another person

Contributions for the current year can be made until April 15 of the following year. The maximum contributions are (for 2008):
For additional information, please contact my office.

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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.

• Gifts of clothing and household items: As in the past, you can continue to donate unwanted items to charity and claim a deduction – but only if the items are in "good" or better condition. This new rule applies to donations of clothing, furniture, appliances, linens and similar household items. (The new rules apply to donations made after August 17, 2006) You will find a tax guide for charitable deductions on the Goodwill website www.goodwillwct.org that may be helpful in determining the value of donated property.
• Cash Gifts: As a general rule, deductions for charitable donations must be substantiated by cancelled checks or receipts from the charity. However, in the past, a log or other written record sufficed when cancelled checks or receipts were not readily available. So, for example, if you dropped a $20 bill in the Sunday collection plate or in a Christmas kettle outside of a department store, you could still claim a deduction as long as you kept a record of the donation. The new law eliminates this option starting in 2007. Bank records or receipts from the charities must support all charitable donations.

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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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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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1. Business 2. Charitable 3. Medical and moving back to top


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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