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Federal Tax Rules to be Aware of Going into 2008 (By Peter B. Diaz, CPA)

With 2007 rapidly coming to a close, below are some miscellaneous tax rules that may affect certain taxpayers in 2008. The list is not all-inclusive but intended to get taxpayers to start thinking about tax planning for 2008 and ways to reduce their tax burden.

·	The maximum contribution to Traditional and Roth IRA accounts increases to $5000 in 2008. Taxpayers who are at least age 50 in 2008 may make an additional $1000 contribution for a total of $6000.

·	The maximum contribution to 401(k) plans will be $15,500 in 2008. Taxpayers who are at least age 50 in 2008 may make an additional $5,000 contribution for a total of $20,500.

·	Certain college age children may be subject to the “kiddie Tax” if their investment income exceeds certain limits. This will subject the child’s income to the parents tax rate.

·	Capital gains and qualified dividends continue to be taxed at a maximum rate of 15% through 2010. Capital gains and qualified dividends will be taxed at a Zero percent for individuals in the lowest ordinary income tax brackets (10% & 15%).

·	The top individual tax rate remains at 35%. Keep an eye on congress going forward.

·	Personal exemptions against income for yourself and each dependent will be $3500 in 2008 (estimated amount indexed for inflation).

·	Earnings subject to Social Security and Medicare Tax in 2008 will be based on the first $102,000 of earnings at a total tax rate of 15.3% (self employment tax rate, half that rate for employees). Earnings above the $102,000 base amount are only subject to Medicare Tax at a rate of 2.3% (for self-employed taxpayers; half that rate for employees).

·	When originally enacted, the Alternative Minimum Tax exemption amounts were not indexed for inflation. For the last few years congress has temporarily increase those amounts. In 2008 (and 2007), the Alternative Minimum Tax exemption remains at the prior lower levels if congress does not act to extend or adjust the increased exemption amounts. Many more taxpayers will be subject to the Alternative Minimum Tax and have a higher tax burden.

·	You may qualify for a 30% Energy Credit if you purchased and installed any residential solar energy equipment in 2008.

·	Businesses involved in certain US manufacturing, construction and production activities may qualify to deduct 6% of the net income from such activities in 2008. The deduction is subject to certain net income limitations and wage limitations.

·	Qualified taxpayers may elect to immediately expense, as a business deduction, up to $128,000 (estimated amount indexed for inflation) of assets placed in service during 2008. This avoids having to claim depreciation expense and a write-off of the cost over a long period of time.

Peter Diaz is a Tax Advisor in Redwood City and has been practicing tax consulting for over 23 Years. He can be reached at 650-400-2539 or through email at peter.diaz@diazconsulting.com. Visit his web site at www.diazconsulting.com.

''The information contained herein is not intended as tax advice. To comply with requirements imposed by the IRS, any information contained in this communication cannot be used for the purpose of avoiding penalties under the Internal Revenue Code.''