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| Vol.
22 - No. 4 |
Winter 2007 |
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TAX PLANNING |
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Tax Planning for Individuals
- Individuals who anticipate being in a higher tax bracket in 2007 than in 2008 should consider delaying receipt of taxable income until the following year.
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- Individuals who need additional income to take advantage of offsetting deductions or credits set to expire by the end of 2007, or project being in the higher tax bracket in 2008, should accelerate income to 2007.
- Individuals who itemize deductions should consider “bunching” deductible expenses into this year or next depending on whether the standard deduction may be taken in one of the years, or whether adjusted gross income limits medical or miscellaneous itemized deductions.
- For 2007 and 2008, individuals may transfer $12,000 per person tax-free and married couples may gift $24,000 per person tax-free.
- In 2008 through 2010, long-term capital gains will be taxed at zero percent for taxpayers in the 10 to 15 percent tax bracket.
- Individuals who itemize deductions may be able to deduct the cost of premiums for mortgage insurance on qualified personal residences. The mortgage insurance contracts must have been issued after December 31, 2006. Deductible payments are those paid before December 31, 2007. The deduction phases out with AGI beginning at $100.000.
- Several energy credits are still available for 2007 including credit for residential alternative energy expenditures, credit for the purchase of alternative fuel vehicles, and the credit for a hybrid vehicle.
- If you anticipate that your 2007 estimated taxes are underpaid, federal and state income tax withholdings can be adjusted for the remainder of the year to make up or lessen the deficiency. This is because income tax withholdings are considered paid equally thought the year even if withholdings are made near year end.
Tax Planning for Businesses
- Cash based businesses can benefit from shifting taxable income and accelerating or deferring deductions between 2007 and 2008, by controlling the receipt of income and payment of expenses.
- If a substantial increase in income is anticipated 2008 then income should be accelerated in 2007 and deductions deferred until the following year
- For 2007, under section 179 of the Internal Revenue code, businesses can immediately deduct up to $125,000 for qualifying equipment purchases, including computers and software. To take the deduction, qualifying equipment must be placed in service by December 31, 2007. The deduction begins to phase-out if the qualifying property placed in service during the year exceeds the investment limitation of $500,000 in 2007 through 2010.
2008 STANDARD MILEAGE RATES
The standard mileage rate for business mileage will be 50.5 cents per mile, an increase of two cents over the 2007 rate. When the standard business mileage rate of 50.5 cents is used for automobiles owned by the taxpayer, depreciation will be considered to have been allowed at a rate of 21 cents per mile. Such depreciation reduces the taxpayer's basis in the automobile.
The standard business mileage rate may not be used for automobiles used for hire (e.g., taxicabs), or when five or more automobiles are owned or leased and used simultaneously by the taxpayer (e.g., fleet operations). Rules providing for substantiation of an employee's ordinary and necessary expenses for local travel or transportation away from home are also provided. Such expenses will be deemed substantiated when the employer, its agent or a third-party provider provides a mileage allowance under a reimbursement or other expense allowance arrangement.
The standard mileage rate for medical and moving expenses has been decreased to 19 cents per mile from 20 cents per mile in 2007.The standard mileage rate for charitable purposes remains at 14 cents per mile.
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