Morre & Company, LLP
Certified Public Accountants
Six Hamilton Landing, Suite
220
Novato
,
California
94949
415-382-5600 Fax: 415-382-5605
August 2008
Dear Clients and Friends:
Standard Mileage Rate increased effective July 1
The IRS has announced an increase in the optional standard mileage rates to 58.5 cents per mile for business miles driven from July 1, 2008, through December 31, 2008. The rate for deductible medical and moving miles will increase as well. The charitable mileage rate will remain the same. (See table below).
Mileage Rate Changes
|
Purpose
|
Rates 1/1 through 6/30/08
|
Rates 7/1 through 12/31/08
|
|
Business
|
50.5
|
58.5
|
|
Medical/Moving
|
19
|
27
|
|
Charitable
|
14
|
14
|
Remember you can deduct your business automobile expenses using the standard mileage rates or using your actual costs. Although the IRS has increased the standard mileage rate, your actual expenses may still be higher so you should be sure to track those.
2008 Estimated Tax Payments
If your income has dropped due to the economic slow down you may be able to reduce your 2008 quarterly tax payments. To avoid penalties on your 2008 tax return, your tax payments must be equal to either 110% of your 2007 tax liability or 90% of your 2008 liability. We normally compute the estimates based on 110% of your 2007 liability. Doing so reduces your costs because we do not have to estimate your 2008 tax liability. Please call if your 2008 income has dropped or if your mortgage or other deductions have increased substantially and we can determine if a reduction in your quarterly tax payments makes sense.
Tax Deferred
Exchange
Safe
Harbor
For tax purposes, you can exchange one piece of investment property for another and avoid paying tax on the gain by using a tax deferred exchange. In March of 2008 the IRS issued Procedure 2008-16 which created a safe harbor definition of investment property for exchange transactions closing after March 10, 2008.
In short, the IRS will not challenge whether a residential property or vacation home property is held for productive use in a trade or business or for investment if the following ownership and use requirements are met:
(1) the relinquished property is owned by the taxpayer for at least 24 months immediately prior to the exchange and a replacement property is owned for at least 24 months immediately after the exchange (the “qualifying use period”), and
(2) within
eac
h of the two 12 month periods constituting the qualifying use period, the taxpayer must:
(a) Rent the property to another person or persons at a fair rental for 14 or more days; and
(b) The taxpayer’s personal use of the dwelling unit cannot exceed the greater of 14 days or 10 percent of the number of days during the 12 month period the dwelling unit is rented at a fair rental.
Personal use includes (1) use by the taxpayer or any other person who has an interest in the property or by a family member; (2) use by any individual who uses the unit under an arrangement which enables the taxpayer to use some other dwelling unit (whether or not a rental is charged for the use of such other unit); or (3) use by any other individual if rented for less than fair market value.
Although this procedure provides a safe harbor for investment property for purposes of an exchange, property that does not meet the terms of the safe harbor may nevertheless qualify for a tax deferred exchange. Of course, any exchange must meet all other applicable legal requirements. Please contact us with any specific questions.
2008 Economic Stimulus Act – Business Tax Incentives
To help jumpstart the slowing
U.S.
economy, Congress has passed two valuable business tax breaks in the Economic Stimulus Act of 2008. The new law nearly doubles the amount of deductible Code Sec. 179 expensing for 2008 and also provides for bonus depreciation.
Small business expensing. Before the new law, a business could expense up to $128,000 of the cost of qualifying property in 2008 as long as the cost of qualified property placed in service during the year is not more than $510,000. Under the new law, a business can expense up to $250,000 of the cost of qualifying property and the old $510,000 ceiling jumps to $800,000. These are some very generous changes. If you're thinking about making a purchase for your business, give us a call. We can help you maximize your tax savings under the new law.
The new law makes no changes to the general rules for the types of property that are eligible for expensing. Generally, the property must be tangible personal property, which is actively used in the taxpayer's business and for which a depreciation deduction would be allowed. The property must be used more than 50 percent for business and must be newly purchased property. The existing inclusion for computer software applies to the enhanced expensing amounts under the new law.
Bonus depreciation. The other incentive is bonus depreciation. The new law provides qualifying taxpayers 50 percent first-year bonus depreciation on the adjusted basis of qualifying property.
To be eligible to claim bonus depreciation, property must be (1) eligible for the modified accelerated cost recovery system (MACRS) with a depreciation period of 20 years or less (most tangible business property qualifies as such); (2) computer software (off-the-shelf); or (3) qualified leasehold property. The property generally must be purchased and placed in service during 2008. Original use of the property must begin with the taxpayer and must occur after December 31, 2007 and before January 1, 2009. There are exceptions for certain transportation property.
The new law also increases the limitations on "luxury" auto depreciation to accommodate a modified version of the 50 percent bonus depreciation available to other "MACRS" property. The first-year limit on depreciation for passenger automobiles placed in service in 2008 is projected to be $2,960 for passenger vehicles and $3,160 for vans and trucks. The new law increases this limit to $8,000 if bonus depreciation is claimed for a qualifying vehicle placed in service in 2008 (for a maximum first-year depreciation of no more than $10,960 for autos and $11,160 for vans or trucks). If the vehicle is not predominantly used for business in a subsequent year, then bonus depreciation must be recaptured
Staff notices
Lastly, we would like to give a big ‘thank you and best wishes” to
Audrey Buren
who recently retired after 17 years with Morre & Company. She will be greatly missed.
We also would like to welcome
Douglas Woodcox
, CPA who is a graduate of
Sonoma
State
University
. He was previously with Eckhoff Accountancy Corporation and Boerio & Company, where he rose to Tax Manager. For the past seven years, Doug has been the Chief Financial Officer for a private company.
Please call us if you have any questions about the issues in this newsletter or other tax, financial planning or accounting issues.
~Your partners in financial success~
~Visit our website at www.morrecpa.com~
