The IRS has increased the standard mileage rate beginning July 1, 2 2008. The rate will increase 8 cents to 58.5 cents per mile for all business miles driven during the second half of 2008. The rate for computing deductible medical and moving expenses have also increased 8 cents to 27 cents a mile for the second half of the year. The charitable mileage rate will remain at 14 cents a mile. That rate is set by statute, and is not subject to change by the IRS.
Normally rates are adjusted once a year, but with rising gas prices, the IRS adjusted the rates again to better reflect the real cost of operating a vehicle.
Our Mission Statement
We are dedicated professionals working together to provide comprehensive quality services to satisfy the needs of clients, business advisors, and each other.
IRS ANNOUNCES 2009 HSA AMOUNTS,RELEASES GUIDANCE ON ONE-TIME IRA-TO-HSA TRANSFERS
T he IRS has released the indexed 2009 Health Savings Accounts (HSA) amounts. These amounts are adjusted annually based upon cost of living increases. For 2009, the maximum annual HSA contribution an eligible individual can make with self-only coverage will increase by $100 to $3,000. For family coverage, the maximum contribution increases by $150 to $5,950. Catch up contributions for an individual 55 or older increases to $1,000 (this amount is set by statute, and is not indexed for costof-living adjustments). Individuals who are eligible on the first day of the last month of the taxable year (December 1 for almost all taxpayers) are allowed the full annual contribution for the following year, regardless of the number of months the individual was an eligible individual in 2009. If you are not eligible on the December 1 date, the maximum contribution and catch up contribution for the following year is prorated based upon the number of months during the year you are eligible. Minimum deductible amounts for HSA Compatible High Deductible Health Plans (HDHP) also increased, self-only coverage increased by $50 to $1,150 and family coverage increased by $100 to $2,300. Also increasing for 2009 is the maximum annual out-of-pocket amounts for HDHP self-coverage, increasing by $200 to $5,800, and for family coverage increasing by $400 to $11,600. Out-ofpocket expenses includes both the deductible on the insurance policy plus any shared expenses for which you are obligated.
The IRS has released the in-The IRS also released guidance exdexed 2009 plaining transfers from an IRA to a HSA. This one-time transfer is allowed due to a 2006 change in the law, and applies to both traditional IRAs and Roth IRAs (this transfer cannot be made from an ongoing SIMPLE IRA or SEP IRA). Individuals that are qualified to contribute to an HSA can make a one-time IRA-to-HSA funding distribution that is generally excluded from gross income and not subject to the early withdrawal penalty. The distribution is not allowed as a deduction and counts against the taxpayer’s maximum annual HSA contribution for the year.
In 2009, for example, a 59 year old individual can contribute $4,000 ($3,000 regular HSA contribution plus $1,000 catch up contribution) into a HSA account. If the individual has already made $800 in contributions for the year, the maximum that the individual can transfer tax-free from an IRA or Roth IRA account is $3,200, and if the maximum is transferred to the HSA account, then no further HSA contributions can be made during 2009.
The IRS clarifies other rules that must be followed to accomplish a qualified transfer. The transfer must be directly from a single IRA or Roth IRA account to an HSA, but does permit a check from the IRA made payable to the HSA trustee and delivered to the HSA trustee by the IRA owner. The HSA owner also must remain eligible (keep HDHP coverage) for 12 months after the transfer, or the individual may be subject to income tax and early withdrawal penalty on his or her transfer.
As has been mentioned many times in the article, either an IRA or a Roth IRA can be used for this one time transfer, but for many reasons the transfer from an IRA is generally the better choice. Traditional IRAs require distributions when the account owner reaches age 70½; distributions from a Roth IRA are never required. IRA distributions are taxable when withdrawn. Since Roth IRAs are funded with after-tax dollars, qualified distributions are tax-free. Due to these reasons, a distribution from a traditional IRA instead of from a Roth IRA is a better choice.
NEW TAX BILL CREATES DEPRECIATION INCENTIVES
Beside the tax rebates, the Economic Stimulus Act which was signed into law earlier this year also created new valuable business incentives allowing businesses to invest in new equipment and recover more of the cost in the first year. These incentives are only temporary, expiring for most businesses at the end of 2008.
One of the new tax provisions nearly doubles the first year Section 179 expense in 2008 to $250,000 (up from $128,000) and increases the threshold at which the deduction begins to be reduced to $800,000 (up from $510,000). For each dollar over the $800,000 purchase limit, the eligible amounts decrease dollar for dollar, until entirely phased out for companies that spend more than $1,050,000 on tangible personal property in 2008. To qualify for the §179 deduction, property must have been acquired for use in a trade or business; it has to be tangible personal property, and must be acquired by purchase (either new or used). After 2008, the limit decreases back down to $128,000 for 2009 and 2010 (that amount will be indexed for inflation). For 2011 and beyond, the limit decreases to $25,000 with no inflation adjustments.
For fiscal year businesses, the increased Section 179 limit applies to the tax year beginning in 2008, thus assets acquired and placed into service during the fiscal year beginning in 2008 and ending in 2009 qualify, and will be included only on the entity’s 2008 return. Fiscal year partnerships and S corporations need to consider their calendar year shareholders and partners who claim the deduction. If more Section 179 expense is passed through to the shareholders than the limit in 2009, that excess will be lost as there is no carryover provision for that excess. This may not be an issue if the pass-through entity has multiple owners, but sole S corporation shareholders and majority owners can be caught in this trap.
The second major business incentive is a 50% bonus depreciation for the purchase of new qualifying business personal property purchased in 2008. The property will not qualify if purchased under a written binding contract for the acquisition which existed prior to January 1, 2008. The rules work the same as the bonus depreciation provisions of a few years ago. For calendar year entities, the bonus depreciation expense will be taken on the 2008 tax return. For fiscal year entities, bonus depreciation can be taken on either the 2007 or 2008 return, depending on when in 2008 the eligible assets were put into service. Unlike Section 179 expensing, bonus depreciation is not phased out if the company’s asset investment exceeds a set amount. Therefore, bonus depreciation will be a more valuable incentive to those bigger companies that place a large amount of assets into service during the year. The 50% bonus depreciation deduction applies for both regular tax and alternative minimum tax (AMT) purposes.
The Economic Stimulus Act of 2008 also increased the first year “luxury auto limit” by $8,000 for qualifying vehicles placed in service during 2008, $10,960 for passenger autos and $11,160 for trucks and vans. Vehicles with a gross vehicle weight of over 6,000 pounds are not subject to the luxury auto limits.
These incentives were created to spur business investment and will allow many businesses to recover most, if not all, of the cost of the investment in the first year. If you have any questions or need assistance in maximizing the benefits of the new law, please give us a call.
HYBRID TAX CREDIT UPDATE
The federal tax credit for hybrid vehicles purchases is available until 2010. Even though Toyota hybrids are no longer eligible, other makes still qualify. With the purchase of a new qualifying Ford (including Ford, Mazda, and Mercury), General Motors (including Chevrolet, GMC, and Saturn), or Nissan vehicle, the full amount of the credit is offered. The tax credit for Honda hybrids has begun to phase out, with only 50% available for new vehicles purchased prior to 6/30/08, and only 25% available for new vehicles purchased after 7/01/08 and before 12/31/08. After 2008, Honda hybrids are no longer eligible. For the full list of qualifying models and the credit available for each, please visit our website www.komisarbrady.com.
When factoring the tax credit into your purchasing decision, be aware that it can be limited or lost due to the alternative minimum tax (AMT). If you are subject to AMT, you will be unable to take the credit in the current year. There is no provision for a carryforward. If you are not subject to AMT, the credit will be limited to the amount that your regular income tax exceeds your AMT.
Komisar Brady & Co., LLP offers much more than high quality tax, accounting and auditing services. We offer many types of consulting services to busi nesses, including business succession planning, sale or acquisition of a business, long range forecasts and budgeting, and valuation services. We also offer estate and retirement planning and aid in the choice and implementation of qualified retirement plans for business owners and sole proprietors. If you have any questions in regards to your individual or business financial matters, please give us a call and see what we can do to help, or if we can direct you to some one who can.
This document provides information of a general nature. None of the information contained herein is intended or written as a tax opinion relative to spe cific issues addressed in this document.
To ensure compliance with Treasury Circular 230, we are required to inform you that any advice concerning U.S. federal tax issues contained on this website is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code and was not written to support the promotion or marketing of any transaction or matter discussed herein. Application of tax regulations is specific to the individual or business and we recommend that you consult a qualified Komisar Brady tax professional for how the above information may apply to you.
