Take a Break....
Word Trivia
* "Stewardesses" is the longest word typed with only the left hand. "Lollipop" is the longest word typed with only the right hand.
* There is no word in the English language that rhymes with "month," "orange," "silver," or "purple."
* The sentence "The quick brown fox jumps over the lazy dog" uses every letter of the alphabet.
* The words "racecar," "kayak," and "level" are the same whether read left to right or right to left.
* Two words in the English language have all five vowels used in order (a, e, i, o, u): "abstemious" and "facetious."
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FEBRUARY 2008 NEWSLETTER
Major Tax Deadlines For February 2008
* February 28 - Payers must file 2007 information returns (such as 1099s) with the IRS. (Electronic filers have until March 31 to file.)
* February 29 - Employers must send 2007 W-2 copies to the Social Security Administration. (Electronic filers have until March 31 to file.)
WHAT'S NEW......
Last-minute laws provide relief for taxpayers
Congress passed two new tax laws in a flurry of year-end 2007 activity. The laws, which include an alternative minimum tax (AMT) "patch" and mortgage relief for homeowners, will affect a wide range of taxpayers. But other proposed tax legislation was put on the shelf, at least temporarily. Here's a brief summary of the key changes in the two new laws.
* Tax Increase Prevention Act. Under this law, the AMT exemption amounts for 2007 are bumped up from their 2006 levels. Without this change, the amounts were scheduled to revert to low levels in effect back in 2001. The new law arrived in time to save 21 million taxpayers from the AMT (although it may cause refund delays). Of course, the latest AMT relief is only a temporary fix. This is likely to be a political hot potato as the Presidential election approaches.
* Mortgage Forgiveness Debt Relief Act. The new law carves out the following tax breaks for homeowners:
*Debt forgiveness. Prior to this law, the forgiveness of mortgage debt by a lender generally resulted in taxable income to the taxpayer. The new law allows homeowners to exclude up to $2 million of certain forgiven mortgage debt from federal taxable income. The exclusion is available for 2007, 2008, and 2009 and applies to foreclosures and renegotiations of qualified mortgages on primary residences. The amount of debt forgiven reduces the basis in the home.
* Mortgage insurance. For the first time, taxpayers were permitted a deduction for qualifying mortgage insurance premiums on 2007 returns. The new law extends this deduction for three years - 2008 through 2010.
* Home-sale exclusion. You can claim a tax exclusion on the first $250,000 of gain on the sale of a home you've owned and used as your principal residence for at least two out of the five prior years. The exclusion is $500,000 for joint filers. Under prior law, a surviving spouse could benefit from the full $500,000 exclusion only if he or she sold the home in the year a joint return was filed. Now for post-2007 sales, a surviving spouse may claim the $500,000 exclusion for sales occurring within two years of the other spouse's death.
Congress expects to revisit several tax issues in 2008. Stay tuned and informed about the changes that could affect you.
HSA limits increase for 2008
Health Savings Accounts (HSAs) allow taxpayers with high-deductible health insurance to set aside tax-deductible dollars that can be used tax-free to pay unreimbursed medical expenses. The amount that can be contributed each year to an HSA is adjusted annually for inflation.
The HSA contribution limits announced by the IRS for 2008 are $2,900 for an individual and $5,800 for a family. Those aged 55 and older may contribute an additional $900 for 2008.
MONTHLY ARTICLES
Reminders for filing your 2007 tax return
* Gather the tax documents needed for filing your 2007 tax return - the W-2s, 1099s, and other information forms you receive from your employer, broker, bank, etc. If you detect errors, notify the sender and ask for a corrected copy.
* Remember, you'll need substantiation for all charitable contributions that you made last year. If you donated a vehicle, boat, or airplane to a charity, your deduction generally will be limited to what the charity sold your item for. The charity should give you Copy B and C of IRS Form 1098-C to substantiate your deduction.
* Check your children's need to file a 2007 return. Generally, your child must file a 2007 tax return if he or she had wages of more than $5,350, self-employment earnings over $400, or investment income (such as interest, dividends, or capital gains) over $850. If your child had both earned and investment income, other thresholds apply. Also, if your child is due a refund, a return must be filed to get it.
* There is still time to make 2007 IRA contributions. If your 2007 IRA wasn't fully funded by December 31, 2007, and you make any IRA contributions prior to April 15, 2008, designate to the bank or trustee that these 2008 contributions are for 2007 (up to the maximum allowed). You can then deduct these amounts on your 2007 return for a quicker tax benefit.
* Make your 2008 IRA contributions as early in the year as possible to maximize tax-deferred growth.
* Deduction reminders: (1) You may deduct mortgage insurance premiums in 2007 if you meet the income limits and other restrictions. (2) Itemizers may choose to deduct either sales taxes or state and local income taxes. (3) Educators may deduct up to $250 for classroom supplies purchased.
* Kiddie tax alert: For 2007 returns, the kiddie tax applies to children under age 18 who had investment earnings over $1,700. For 2008, the age limit increases to 19 (to 24 for full-time students), and the earnings limit increases to $1,800.
* If you're among the many taxpayers who get a large tax refund this year, do yourself two favors: (1) invest the refund instead of spending it, and (2) adjust your withholding for 2008 so your money can be invested for you rather than the government.
* File business returns on time. The deadline for filing partnership returns is April 15, 2008. Calendar-year corporation tax returns are due by March 17, 2008.
Turn your hobby into a business for a lower tax bill
Turning your hobby into a business could lower your tax bill. If you have a hobby that takes up a lot of time and money, take a close look to see if it qualifies as a business. Why? Having a business instead of a hobby could mean a lower tax bill.
If your activities constitute a business, then your expenses, including depreciation, may be tax deductible. As a hobby, these expenses are subject to limitations. Business losses are tax deductible and can be used to offset other taxable income. Hobby losses cannot.
The IRS defines a hobby as an activity not engaged in for profit. Here are some of the determining factors.
* Look at your history. If your activity shows a profit in three of the most recent five years (two out of seven years for horse-related activities), it is more likely a business than a hobby.
* Examine your conduct. Even if your business loses money, you may be able to deduct the losses if you can show that you were engaged in this activity with the intent of making a profit.
* Keep good books. You must keep accurate books and records, and conduct the activity as a business. If your recordkeeping is haphazard, it will probably be difficult for you to demonstrate that your activity was a business rather than a hobby.
* Watch the clock. Document the time you invest in this activity. The amount of time you spend in relation to other activities will, in part, determine whether this activity qualifies as a business.
* Experience counts. Past experience with similar activities, especially if they were profitable, may be an indicator that this activity is more than a hobby.
* Fun is bad. If the activity has elements of personal pleasure or recreation, it may be more heavily scrutinized by the IRS.
If you hope to deduct any losses resulting from a sideline business, be certain that you are doing all that is necessary to meet the requirements of running the activity in a business-like manner. Call us if you would like more information.
This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, click here.
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