The Bottom Ten Tax Law Changes 2008

Bottom Ten Tax Law Changes for 2008

By David Roberts

Our first article explored the top ten changes to our tax laws for 2008. This article will continue the look at the remaining changes in store for us as taxpayers in the great old U S of A.

One, a Decrease in the Alternative Minimum Tax Exemption amount. Now, this particular change heavily relies on Congress doing what they have done in the past two years and making this change before December 31st, 2007. AMT began in the 1960's when some congressmen got the idea that it wasn't fair for the ‘rich' ($60000/year) to be able to deduct all those expenses and ‘not pay their fair share'.

The problem occurs in that this AMT was never indexed to inflation. So, while $60,000 was considered wealth in 1960, it is not the same case today. It is possible that many Americans who have never dealt with this issue before will lose some of their deductions. The key will be to make sure that if one is close to the $69950 mark in income, that they inspect the result of taking all their deductions and facing the AMT or possibly just using the Standard Deduction.

Two, we get the 50% Special Depreciation Allowance back! Taxpayers who place property into service in 2007 will be able to take advantage of this special depreciation allowance in the first year. This property placed in service must have a recovery period of 20 years or less, qualified leasehold property, or water utility property. This allowance is figured after the section 179 deduction and before the regular depreciation.

Three, if the special allowance above applies, the limit on depreciation and the section 179 deduction for automobiles is increased by $8000.

Four, the Section 179 Expense Deduction. The maximum increases to $250000. The phase out of this benefit begins when property exceeds $800,000. Now that that is clear, what is the section 179? Any property placed in service has an expected life of service, autos, machines, buildings, etc. The section 179 allows the business owner to take full advantage of the entire amount of depreciation in the first year the property is placed into service. So, instead of taking 1/5 of the depreciation over five years, all five years of depreciation are taken in the first year. There are a couple of problems with using this option. First, you have now lost the deduction for the remaining years of use of this property. Second, should you sell the property before the useful life period is over, you will owe taxes on the remaining amount of depreciation taken in the first year. If selling the property is not anticipated, then this option would make sense.

Five, the Self-Employment tax that plagues many small business owners will be increasing its' lower limit from $1600 to $4200 with the upper limit being increased to $6300.

Six, for those in the transportation industry, pilots, truck drivers, etc the Meal Expense Limit has been increased to 80%. This is for meals consumed on duty or in the course of doing your job. For those of us not in the transportation industry, we are still stuck with the 50% limitation.

Seven, the Credit for Prior Year Minimum Tax. For tax years beginning 2007, the current year refundable credit cannot be less than the prior year refundable credit, that is, before the AGI phase out.

Eight, Non-resident aliens will no longer be able to claim exemption from tax on interest related dividends or short term capital gain dividends that have been paid by a regulated investment company. (about time! Why should there be an exemption from this tax simply because the individual has chosen to not become a citizen?)

Nine, Expired Individual Provisions. The following tax benefits for individuals have expired as of this year:

•a. allowance of certain personal tax credits against AMT.

•b. Deduction for educator expenses in figuring AGI

•c. Tuition and Fees Deductions

•d. Deduction for state and local general sales taxes.

•e. Non-business energy property credits.

•f. Increased AGI limits for a deduction for a qualified conservation contribution.

•g. Election to include nontaxable combat pay in earned income for EIC.

•h. Exception to the early withdrawal penalty for plan distributions to reservists and repayments made to an IRA after 2007.

•i. The exclusion from income for certain IRA distributions made directly to a charity.

Ten, Expired Business Provisions.

•a. Research credit (for amounts paid or incurred after 2007)

•b. Shareholders basis adjustment for stock of S Corporations making charitable contributions.

•c. Indian employment credit.

•d. Accelerated depreciation for qualified Indian reservation property placed in service after 2007.

•e. 15 year recovery period for qualified leasehold improvements and restaurant property.

•f. 7 year recovery for a qualified motorsports entertainment complex.

•g. Special rules for contributions of food and book inventories.

•h. Special rule for corporate contributions of computer technology or equipment for educational purposes.

•i. Tax incentives based on the District of Columbia Enterprise Zone.

•j. Deduction for domestic production activities in Puerto Rico.

•k. Suspension of 100% taxable income limit on percentage depletion for oil and natural gas from marginal properties.

•l. Environmental cleanup costs deductions.

•m.Reforestation expense deduction increase for certain small timber producers.

Any one or all of these could be reinstated by Congress at any time before the end of this tax year, so consult your tax professional for details and prepare yourself just in case! I hope this article has been beneficial for you.