Your Friendly Neighborhood Tax Advice

I went to a seminar yesterday that highlighted changes in the tax law for 2008. I have listed those items that I think will be of benefit to members of the family. Make sure you read the audit warnings at the bottom - there is something very important that definitely impacts Mormons. Anyway, here goes…

Capital Gains - If you are in the 15% tax bracket, any capital gains up to the 15% bracket limit will be taxed at 0%! This is a significant change. If your taxable income (income minus exemptions and deductions) is less than $65,100 you will benefit.

Educator Expenses - Teachers (that would be you Marjorie) can deduct up to $250 of unreimbursed expenses. This was set to expire but has been extended through 2009.

HSAs - If anyone has an HSA account, you are now allowed to make a one time contribution from your IRA directly to your HSA account. You effectively would avoid taxes on any amounts that you move as distributions from HSA accounts are not taxable.

Property Tax Standard Deduction - The regular standard deduction is a set amount. If you are blind or over 65 you can add to this standard amount. They have now added a third category for those who pay property taxes. So if you don't have enough deductions to itemize and you pay property taxes you can now claim up to an additional $1,000 on top of your $10,900 standard deduction!

Itemized Sales Tax Deduction - You guys in Texas lucked out. This ridiculous deduction that George Bush gave (only because he was from Texas) has been extended through 2009. I hope you're happy.

Business Mileage - You (John) can claim 50.5 cents per mile for the first half of 2008 and 58.5 cents for the second half. In 2009, the amount is 55 cents per mile.

Charitable Mileage - Most people don't know they can deduct mileage while assisting a charity. For example, if you drive to a soup kitchen to help for the day, you can deduct 14 cents per mile for the round trip. Also, if you are helping with the ward's cannery assignment (not for personal canning) you would also qualify. Sorry dad, the trips to the Oakland temple would be considered personal in nature.

AUDIT WARNINGS!!!

The IRS and state governments (especially CA) are increasingly desperate for revenues. Since they can't raise taxes, they have increased the level of audits significantly to bring in more money. Now more than ever, you must make sure you are dotting the i's and crossing the t's. Here are a couple of examples…

Charitable Donations - You are required to have written proof of your charitable donation BEFORE you file your tax return. The IRS actually sued a family last year regarding this point. The family made legitimate, qualified donations to their church. When they were audited, they went back to their church for a duplicate copy of their donations for proof. The IRS denied their deduction because they were supposed to have secured a copy before the return was filed. The court agreed. So do NOT lose your tithing settlement records! BTW - Cancelled checks won't save you either.

Home Interest - The IRS is aware of the massive abuse on this one and is coming down hard. Contrary to popular belief, you are NOT allowed to claim all interest reported to you on a first mortgage. You are only allowed to claim interest on "original acquisition indebtedness." If you financed $100k on a $150k home when you first bought it and subsequently refinanced it to $300k over the years, you are only allowed to deduct interest on the first $100k of the refinanced loan. You may still be able to claim the interest on an additional $100k if you meet the requirements for home equity indebtedness but that is a separate deduction.

Earned Income Credit - The IRS is looking very carefully at anyone who takes this credit from now on. They have realized that the error (fraud) rate is about 24% and for some reason they are a little testy about it now. Take it if you qualify, but just know your return is likely to be scrutinized.