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Check the numbers for 2008 tax savings

Posted: November 26, 2008 10:00 p.m.
Updated: November 27, 2008 4:59 a.m.
 
Do you like numbers? Do you like them better when they involve tax savings? Here are 10 numbers and 10 tax-saving strategies to consider as the clock starts to wind down on 2008.

n 19 for 2008. The kiddie tax applies to children under age 19 as well as full-time students under age 24.

What's the impact? When your child has investment income, such as dividends and interest, of more than $1,800 for the year, the income may be taxed at your highest tax rate. Consider hiring your home-for-the-holiday children in your business during the end-of-semester college break. Wages are earned income and are taxed at your child's rate.

n 30 days. Wash sale rules can limit your current-year losses on investment sales. These rules kick in when you sell an investment at a loss and buy a substantially identical investment within 30 days before or after the sale date.

Be careful to replace loss-generating securities with others that are similar, but not identical.

n 0 percent. The capital gains tax rate on qualified dividends and gains from sales of stocks, bonds and other securities you've held more than a year is zero if your 2008 taxable income is less than $65,101 (married filing jointly) or $32,551 (single).

Assess your portfolio with an eye toward realizing gains on investments in which you have a low basis.

n 7.5 percent. To take an itemized deduction for medical care, your total expenses have to equal more than 7.5 percent of your adjusted gross income. Not quite there? You may be able to bunch your costs.

Bunching is a classic tax planning strategy that involves accelerating expenses into the current year or deferring them to the next year. Calculate your expenses to date. Include amounts you paid for family members who failed to qualify as your dependents only because they did not meet the gross income or joint return test.

If you're close to the 7.5 percent floor, look for opportunities to increase your deduction. Example:

Schedule deductible elective procedures before year-end.

n 50 percent. Bonus depreciation is back. For 2008 you can immediately deduct up to half of the cost of qualifying new business assets. In addition, the bonus rule increases the maximum amount of first-year depreciation on luxury passenger cars and light trucks that you use in your business by as much as $8,000. Consider replacing worn-out business vehicles and equipment before year-end.

n 100 percent. Subject to certain restrictions, you can claim self-employed health insurance premiums "above the line" - meaning you can subtract them from your gross income. However, at the beginning of 2008, the IRS issued a notice spelling out the procedures you'll need to follow to keep this deduction from being disallowed if your business is set up as an S corporation. Have your business write an additional compensation check before year-end to reimburse you for premiums you paid personally.

n 58.5 cents. Use this standard mileage rate to calculate the amount you can deduct for each business mile you or your mobile employees drive from July 1 through year-end. (For business miles driven from Jan. 1 through June 30, the deductible rate remains at 50.5 cents.). Remember, estimates are not enough to support a deduction. The IRS requires adequate records, either written or electronic.

n $3,000. You can use up to $3,000 of capital losses to reduce other taxable income. Is your income too high to benefit from the zero percent capital gains rate in effect this year? "Harvesting" tax losses to offset gains can generate tax savings.

n $5,000. Make a deductible contribution of up to $5,000 to a traditional IRA and save tax dollars now.

Contributions to a Roth IRA are not deductible, but provide tax-free withdrawals later. In both cases, growth within the accounts is generally tax-free. If you're over 50, you can contribute up to $6,000 to an IRA for 2008. Maximize your savings by contributing as much as you can to all retirement plans for which you qualify.

n $250,000. The Section 179 depreciation deduction lets you treat up to $250,000 of the cost of business assets you purchase and place in service during 2008 as a current-year expense.

The deduction phases out when you buy more than $800,000 of assets during the year.

Effective tax planning requires a comprehensive assessment of current-year transactions, as well as your intentions for 2009 and beyond. Other factors, including financial aid for education and cash flow and liquidity needs, can also affect strategy decisions.

Please call us to schedule an analysis of the tax-saving opportunities that are available in your particular personal or business situation.

Alan J. Lyon, CPA specializes in tax planning, tax preparation and consulting for individuals and businesses in Santa Clarita. His column represents his own views, and not necessarily those of The Signal. "It's Your Money" appears Thursdays and rotates between a handful of the Santa Clarita Valley's financial professionals.

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