CHANGES IN TAX LAW
If you have questions about this section, please contact us. This information is general, and it may be difficult to determine how it applies to your specific situation.
SOCIAL SECURITY: The taxable wage limit of the FICA portion of Social Security has increased from $97,000 in 2007 to $102,000 in 2008. This represents a $279.00 increase for both employees and employers. As in the past, the Medicare portion has no wage limit.
RETIREMENT CONTRIBUTIONS: Employee deductions for 401(k), 403(b) and 457 plans remain at $15,500 for 2008. The “catch-up” provisions will also remain at $5,000. If you are 50 years of age or older you will be able to defer a total of $20,500. IRAs and Roth IRAs will remain at $4,000, and the “catch-up” provisions will remain at $1,000.
CHARITABLE CONTRIBUTIONS:
Cash donations need a receipt
A change buried in the Pension Protection Act passed into law in August of 2006 requires that a cash donation must have a receipt to be tax deductible. This change is effective January, 1, 2007 for individuals, regardless of dollar amount donated. You can still donate cash in any amount to religious and other charitable organizations, but you need a receipt from the organization if you want the donation to be deductible on your tax return. IRS will no longer “take your word for it.”
For donations via payroll deductions, your final pay stub of the year and a copy of the pledge card showing the name of the charity and amount pledged will suffice. Donations by check or credit card will have a cancelled check or credit card receipt or bill to verify the amount and organization, as they always have. Items charged on a credit card are considered to be donated on the date of the charge, not when the credit card bill is paid.
The new law does not change the long-standing requirement that any single donation of $250 or more, whether money or property, requires a written acknowledgment from the donee organization to be tax deductible. The acknowledgment should not be attached to your tax return, but must be in your possession by the time you file the tax return that claims that deduction.
Clothing and household items must be in good condition
Another change, this one effective after August 17, 2006, requires that clothing and household items donated to charities be in good used condition or better. IRS has not offered any guidelines yet as to what or who determines the condition of the item. It has been suggested that you may want to keep photographs of the items if you are donating a lot of your used possessions. Furniture, furnishing, electronics, appliances and linens are included. One exception is that you may claim a deduction of more than $500 for any single item, regardless of condition, if you attach a qualified appraisal of the item to your tax return. Donations of personal property valued above $500 for the whole year will require the completion of a special tax form giving details to the IRS, as in the past.
Automobile donations became more strict in 2005
New rules went into effect for the 2005 tax year that limited the deductible amount of donated vehicles. The 2006 tax laws made no change to the more restrictive donated vehicle rules. See IRS Publication 526 for these newer lengthy rules.
MILEAGE ALLOWANCE: The IRS standard business mileage allowance for 2008 will be 50.5 cents per mile. As always, you need to be able to substantiate the miles driven for business purposes.
ROTH 401(k): Beginning in January 2006, 401(k) plans will be able to allow non-tax-deferred contributions by employees to their retirement accounts. This will work similarly to Roth IRA accounts, where the qualified withdrawals and related earnings will not be subject to income tax. The employer's plan will need to be amended if it is to allow this new type of contribution for 2006.
S-CORPORATIONS: The Internal Revenue Service has announced that they will be conducting audits of 5,000 returns of S-Corporations. These line-by-line reviews will be more detailed than “normal” audits and will require substantiation of everything on the return. These types of audits are done occasionally by the IRS to guide them to be more efficient (produce more taxes and penalties) in their future audits.
EXTENSIONS: If you are an individual, partnership or trust and need an extension, you will now receive a six month extension (rather than the previous four month extension), for a new deadline of October 15. Remember, this does not extend the time to pay your taxes, just to file the return. Taxes are still due in April when the extension is submitted.
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