Seland And Winn Newsletter Looking Ahead After 2007

LOOKING AHEAD AFTER 2007
TAX CHANGES and MORE

Points Of Interest

IRS INCREASES BUSINESS STANDARD MILEAGE RATE Beginning July 1, 2008, the IRS has increased the Automobile Business Standard Mileage Rate to 58 1/2 cents per mile. This is up from 50 1/2 cents per mile. So, for your 2008 taxes, business mileage rates are divided into two rates: 50 1/2 cents from 1/1 until 6/30, and 58 1/2 cents from 7/1 until 12/31. All taxpayers who use this rule are advised to keep two seperate mileage logs; one for each timeframe. The 58 1/2 cents per mile rate will be effective until the IRS issues a new rate.

IRA CONTRIBUTION LIMITS INCREASE For individuals under 50 years of age, the annual IRA (both Traditional and Roth IRA) maximum contribution will increase to $ 5,000, with indexing to inflation cost-of-living increases thereafter. The taxpayer who is 50 or above during 2008 enjoys the “Catch-Up” provision that raises this limit to $ 6,000.

ELECTIVE RETIREMENT PLAN CONTRIBUTIONS The $ 15,500 deferral limit that applied to 401(K), 403(B), SEP and 457 plans will have inflation indexing for 2008 and later years. The SIMPLE IRA deferral limit, which will be $ 10,500 for 2008, will also be inflation-indexed for later years. The SIMPLE IRA “over age 50” limits will also be $ 2,500 for 2008, and will also be inflation-indexed.

CAPITAL GAINS RATES These favored rates have been extended for years through 2010. For taxpayers with a top tax bracket over 15%, the rate of 15% will apply to net Capital Gains and Qualified Dividends realized. For those with a top bracket of 10% or 15% other than for children subject to the “Kiddie Tax”, there will be a 0% rate on net Gains and Qualified Dividends received in 2008-2010.

ROTH IRA CONVERSIONS FAVORABLE AFTER 2009 Beginning in 2010, all taxpayers, even those whose Adjusted Gross Income (AGI) is over $ 100,000, will be able to convert a Traditional IRA to a Roth IRA.

CHILD TAX CREDIT REMAINS UNCHANGED The $ 1,000 credit per Qualifying Child will remain through 2010.

KIDDIE TAX AGE LIMIT INCREASED Starting in 2008, the Kiddie Tax age limit is increased from the child being 18 to all full-time students up to 23 years of age.

FIRST YEAR BUSINESS EXPENSING LIMITS will continue to be indexed to inflation cost-of-living. For 2007, the limit was $ 125,000 on new business equipment put in service. After 2010, current laws in place, the limit will drop to $ 25,000.

DIRECT ROLLOVERS FROM RETIREMENT TO ROTH Plans will be allowed, subject to the Roth Conversion rules. Taxpayer can directly rollover, from his 401(K), 403(B), or 457 plan funds to their Roth IRA without being charged the 10% early withdrawal penalty and if their AGI is $ 100,000 or less.

DOMESTIC PRODUCTION ACTIVITIES DEDUCTION stays at 6% for 2008 and 2009, and increases to 9% for 2010.

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