| Winter 2008 |
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TaxAdvisor
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Economic Stimulus Act of 2008
By now, you've probably heard about the Economic Stimulus Act of 2008 which
was signed by the President on February 13th. The centerpiece of the act, of
course, is the government's issuance of rebate checks to most Americans. The
bill also gives businesses some beneficial fixed asset provisions. Here are the
key details of the act:
Rebates
Most taxpayers will receive the credit in the form of a rebate check. The
amount of that check will typically be between $300 - $600 per person ($600 -
$1,200 per couple), depending on your 2007 tax liability and earned income
level. There is also a $300 credit for each qualifying child for whom the child
tax credit can be claimed. This is generally a dependent child who is under age
17 at the end of the year.
Some low-income workers and recipients of Social Security, certain veterans’
benefits and certain Railroad Retirement benefits may also qualify for the
stimulus rebate.
To get the rebate all individuals MUST file a 2007 return, including
those who do not normally file a tax return because they do not meet the
filing requirement. Further, the return must show at least $3,000 in qualifying
income.
For people with an adjusted gross income (AGI) above $75,000 ($150,000 for
joint returns), the amount of the rebate credit (both the basic and qualifying
child amounts) will phase out at a rate of 5 percent. For single filers with no
children with an AGI of $87,000 or greater ($174,000 for joint filers with no
children) there will be no credit issued.
The rebate amount is not considered gross income and does not otherwise
reduce the amount of withholding. Also, the rebates will be subject to offsets
for items like past-due child support and debts owed to the federal government.
Treasury will make every effort to issue payments as rapidly as possible to
taxpayers who filed their 2007 tax returns on time. Taxpayers who filed late or
on extension will receive their payments later. No rebate checks will be issued
after Dec. 31, 2008.
A reconciliation of the tax rebate check will be completed on your 2008 tax
returns.
Business Incentives
Boosted Section 179 Expensing – Under pre-Act law, taxpayers can
expense (i.e., deduct currently, as opposed to taking depreciation deductions
over a period of years) up to $128,000 for 2008. This annual expensing limit is
reduced (but not below zero) by the amount by which the cost of qualifying
property placed in service during 2008 exceeds $510,000. The expensing rules are
eased for qualifying empowerment zone property, renewal property and GO Zone
property. The amount of the expensing deduction is limited to the amount of
taxable income from any of the taxpayer's active trades or businesses.
Under the Act, for tax years beginning in 2008, the $128,000 expensing limit
is increased to $250,000, and the overall investment limit is increased from
$510,000 to $800,000.
As a result of this incentive, most small businesses, and even some
moderate-sized businesses with moderate capital equipment needs, will be able to
obtain a full deduction for the cost of business machinery and equipment
purchased in 2008, thereby reducing their effective cost for those assets.
What's more, there is no alternative minimum tax (AMT) adjustment with respect
to property expensed.
Bonus Depreciation Makes a Comeback – Bonus first year depreciation
generally isn't available for property acquired after 2004. (There are some
exceptions, such as for qualified GO Zone property generally placed in service
before 2008.)
The Act provides for bonus (accelerated) depreciation by allowing a bonus
first-year depreciation deduction of 50 percent of the adjusted basis of
qualified property placed in service after Dec. 31, 2007, and, generally, before
Jan. 1, 2009. The basis of the property and the depreciation allowances in the
year the property is placed in service and later years are appropriately
adjusted to reflect the additional first-year depreciation deduction. The amount
of the additional first-year depreciation deduction is not affected by a short
taxable year. The taxpayer may elect out of additional first-year depreciation
for any class of property for any taxable year. And there is no AMT adjustment
for the entire recovery period of qualified property.
If you have any questions or would like additional information regarding
this Tax Advisor, please contact one of our tax practice leaders: Jim Bowen at
330.255.2461 or Mike Hydell at 330.255.2456.
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