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In an
effort to boost the U.S. economy, Congress passed
the Economic Stimulus Package Act of 2008 on
February 7. The legislation will provide tax rebate
checks to about 130 million households, starting
sometime in May.
The
package also contains business tax incentives and
help for distressed homeowners. Here are the major
provisions in the law.
* Single
individuals may be entitled to receive a one-time
tax rebate of up to $600; joint filers may qualify
for up to $1,200. The rebate amount begins to phase
out for higher-income taxpayers, beginning at
$75,000 of adjusted gross income for single filers
and $150,000 for joint filers (based on 2007 tax
returns).
* People
who don’t pay income taxes may qualify for $300
rebates if they had at least $3,000 of earned income
or tax liability of at least $1 in 2007. Social
security income and federal payments to disabled
veterans and their widows count as earned income for
rebate purposes.
* Those
who qualify for the basic rebates are also eligible
for an additional $300 for each dependent child
under age 17.
*
Businesses may qualify for 50% bonus depreciation on
qualifying new equipment purchases in 2008.
* The
Section 179 expensing limit for 2008 is increased
from the previous $128,000 to $250,000, and the 2008
phase-out threshold is increased from $510,000 of
total equipment purchases to $800,000.
* The
loan limits for Fannie Mae, Freddie Mac, and the
Federal Housing Administration are increased, a
provision intended to assist taxpayers during the
sub-prime mortgage crisis.
Year
end tax tips for businesses:
1. Increase Expenses or defer
income now before year end:
Purchase
items your business will require in the
immediate future to maximize deductions
for this year. If you see a need for
services or goods in the beginning of
next year, buy them now. Office supplies
such as : printer cartridges,
stationary, and paper are good examples.
Another good idea might be to pre-order
and prepay your magazine subscriptions,
travel bookings, equipment repairs and
maintenance.
Depending
on your income tax rates in the
foreseeable new year, deferral of income
can make great sense for many sole
proprietors, LLC’s, partnerships and S
corporations. You might want to book a
service job or sell and ship a product,
and get paid in January rather than
December.
2.
Inventory Write-offs for year end:
You may
wish to check your inventory for goods
that have become obsolete or have been
damaged. This drop in market value or
loss on a damaged inventory product may
decrease your inventory for tax
purposes. A reduction in your inventory
for tax purposes increases your expenses
and decreases your taxable income. This
may provide your company with added
deductions.
3.
Capital Equipment Purchases and Section
179 deduction for this year:
Typically, certain property that is
deemed to have a useful life of more
than one year has a requirement to
spread the cost over a prescribed amount
of years as depreciation. But there is a
way to immediately receive these income
tax benefits in one tax year. IRS Code
Section 179 allows a sole proprietor,
partnership, or corporation to fully
expense tangible property in the year it
is purchased. Recent tax law changes has
made this even more appealing by
increasing the amount that can be
written off immediately. These changes
mean that in 2007, a business can
expense $125,000 in capital expenditures
up to an overall investment limit of
$500,000. So if you foresee a need in
the near future to acquire computers,
equipment, or furniture and fixtures,
you may want to purchase it now and make
this election which would enable you to
deduct up to $125,000 for 2007.
There is
also a deduction for a SUV under Section
179. This allows a business to deduct
up to $25,000 of the cost of a
qualifying larger vehicle in the year of
purchase. The SUV, van or truck must
have a gross weight of more than 6000
pounds and typically be built on a truck
chasis rather than a car chasis in order
to to qualify. This deduction can be
claimed on a vehicle purchased and put
into business use as late as December
31. So you might want to take a visit to
your local auto dealer.
4.
Contribute to a Retirement Plan for 2007
Make payments to
your retirement plan or set one up
before the year-end to reduce your
income for this year. A small business
owner, whether a sole proprietor, sole
shareholder of a corporation or single
member of an LLC, can set up a
retirement plan, boost tax deductions
and reduce business taxable income. A
solo 401(k) plan may be established as
late as December 31st, but
does not have to be fully funded until
the due date of the business tax return
in 2007- plus extensions. For a sole
proprietor, the filing deadline can be
extended to as late as October 15th
2008. A SEP can be established and
funded as late as the extended due date
of the business return.
A qualifying small
business that establishes a new
retirement plan may claim an additional
tax credit of up to $500 per year for
the first three years of the plan
predicated upon the costs of setting up
and operating the new retirement plan
during the first three years. A tax
credit is preferable to a tax deduction,
as it directly reduces your tax,, dollar
for dollar.
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