It's been said that the 2007-08 bear market has been the worst since the Great Depression.  It has been worse than that of 1973-74, which many of you remember only dimly, if at all, and 2000-02, which we remember all too well.  The combination of two deep bear markets in less than a decade has poisoned many people against common stocks and equity mutual funds.  Many people are asking, "who would want to own these things"?...

You would!

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

I wish to communicate a heartfelt Merry Christmas to all of my clients, friends, family, colleagues and associates. 

It is very easy to find fault in our world and even easier to complain about it.  However, despite having recently gone through the ugliest market decline in my lifetime, despite the continued economic uncertainty, despite government and personal greed as displayed recently by the Illinois governor (he's not the only one), despite corporate greed and corruption as displayed recently by Bernard Madoff defrauding investors of approximately $50 Billion (yes Billion), despite it all, I am thankful and blessed this Christmas.  While we can't ignore what needs fixing around us, we can choose to have a general attitude of appreciation and thanksgiving.

 

 

Here are some tax law changes that you may be interested in.  Browse the headlines to see if any apply to you.
You won't receive all your 1099s by the end of January this year.  New rules change the due dates for many types of 1099s from the end of January to the middle of February and many of the brokerages and mutual fund companies can also request an additional extension so they don't have to file so many corrected 1099s when they get revised information.
 
New minimum wage rates. Effective 1-1-09 the Missouri minimum wage increases to $7.05 and effective 7-29-09 the federal minimum wage increases to $7.25.
 
Standard Mileage Rates Increased Mid Year.  This year you need to break deductible mileage down between miles driven before and after July 1 because for miles drive after July 1 the rates increased from 50.5 to 58.5 cents per mile for business miles and from 19 to 27 cents for medical and moving miles but charitable mileage stays at 14 cents.  I guess uncle Sam just wants you to ride a bike for your charitable work.  It also should not cost you any more to eat out when traveling because the standard per diem rate for meals and incidentals stayed at $45 per day.
 
Bonus Depreciation is Back.  For 2008 you can expense off 50% of the cost of any NEW assets in the year of purchase so long as their standard asset MACRS depreciation life is 20 years or less.  Used property does not qualify.  Any asset where you deduct bonus depreciation is exempt from the dreaded alternative minimum tax (AMT) for the life of the asset.  If you elect not to take bonus depreciation you must elect out for all assets with the same class life.  The last time we had bonus depreciation Missouri would not allow the deduction but this time Missouri has said they will allow the deduction.  However, many states still do not allow the deduction and therefore you can have different depreciation schedules for state and federal tax purposes. 
 
Section 179 Expense Election Increased to $250,000 for 2008.  Even if you decide to deduct the 50% bonus depreciation in the previous item you can still expense the remainder of any new or used asset purchase other than buildings up to the lesser of $250,000 or the amount of profit from the business.  Be careful here because people often make the mistake of assuming a big purchase in one business will offset profits from another business.  If those businesses are in separate entities the section 179 limit is on a per entity/per return basis.
 
What Does IRS and the Tax Court Look At to Determine if You Are In Business to Make a Profit For Multi Level Marketing Such As Reliv-Avon, etc.? In a recent tax court summary (Eder v Commissioner) the court noted the taxpayer had never prepared a business plan, never calculated a break-even point showing how much future profit he would need to recoup past losses, maintained no organized record-keeping system, etc.  As a result, the court determined he was not in the activity for a profit and was not entitled to claim any deductions beyond the amount of income reported from the operation.
 
Mortgage PMI insurance deductible as interest.  Premiums paid for mortgage insurance on home acquisition debt is deductible as interest expense.  This only applies to mortgage insurance contracts issued during the current year and you can only deduct the premium for one year's worth of the insurance.  Home equity loans are not covered.  This deduction applies to primary residence and one secondary personal residence.  The deduction started in 2007 and has been extended through 2010.
 
IRS Gives Self Employed Deduction For Health Insurance As a Business Expense.  In CCM 200524001 the Office of Chief Counsel of the IRS indicated a sole proprietor can deduct health insurance for himself and family from the earned income of the business when the insurance policy is in the name of the sole proprietor and not in the name of the business.  However, the deduction is limited to the amount of profit from the business.
 
Over 70 ½ you can now contribute part of your IRA to charity and pay no tax on it.   If you don't need the money and are going to contribute it to charity anyway for 2008 you can again transfer up to $100,000 of an IRA to a charity and you pay no tax on it.  The great thing is this counts toward the required money you must withdraw this year so if you elect to transfer direct to charity you may not have to report any IRA income.
 
Federal Midwestern Declared Disaster Area Doubles Tuition Tax Credits.  With all the floods and storms in the last year this could affect many people.  Go to www.fema.gov/news/disasters.fema and look at all the federally declared disasters for the year to see if your county was declared a disaster area with "Individual Assistance".  For certain disasters, if the county where you child attends college received one of those declarations for 2008, you may be eligible to double the tuition tax credit on your tax return.  In Missouri, students attending colleges in Fulton, Kirksville & Springfield all qualify in 2008 for the double tax credit.
 
Real Estate Tax Deduction For Those Who Take The Standard Deduction Instead of Itemizing Deductions.  For 2008 those who don't itemize can increase their standard deduction by the amount of their real estate tax up to $500 on an individual return and $1,000 on a joint return.  Personal property tax does not qualify.
 
Stock Market Drop May be a Good Time to Convert Your Regular IRA to a Roth IRA.  If your adjusted gross income is under $100,000 on your joint return you may want to convert your regular IRA to a Roth IRA.  This will cause you to pay tax now on whatever you convert but if the market climbs in the future those gains will be tax free forever in the Roth.  If you look at the last 8 major stock market declines you will find the market dropped for an average of 12-16 months and in the 12 months after the market hit bottom the average gain in the market was 39%.  In addition, you never have to withdraw the money from a Roth IRA whereas with a regular IRA you must begin taking withdrawals every year once you reach age 70 ½.
 
Leasehold Improvements for Retail and Restaurant Buildings Qualify for 15 year Depreciation Life.  The shorter asset life for restaurant buildings from the 2007 law was extended to 2008 acquisitions and now retail leasehold improvements also qualify for the 15 yr life instead of 39.5 yrs.
 
Don't be Energy Efficient in 2008.  For some reason the residential energy tax credit that was in effect in 2007 was renewed but the renewal is not effective until 2009.  That means anything you buy in 2008 won't qualify.  

 
Employers Who Supplement Active Duty Pay Get 20% Tax Credit.  For employers that pay military on active duty the difference between military pay rate and normal pay the employer gets a 20% differential wage tax credit on the first $20,000 in differential wages paid.

 
Expect Your Broker to Start Tracking The Cost of Your Investments.  Starting with stock you acquire in 2011 and mutual funds you acquire in 2012 the brokers will be required to report to the IRS your cost and your selling price for all sales of items you acquired after that date.  That will mean if you move investments from one place to another you will need to be sure you give the new broker all the cost basis information for securities you transfer into the new account.
 
First Time Home Buyer $7,500 Tax Credit.  This sounds like a great deal but it is really a loan rather than a credit.  If you claim the tax credit then you have to start repaying $500 per year until fully repaid.
 
IMPORTANT - When you complete your tax organizer, be sure and let us know the amount of your economic stimulus rebate because the check you received was an estimate of what you should actually get based on your 2008 tax return and you may be entitled to more based on your 2008 tax return.
 
I hate to admit this but I just can't squeeze in all the tax changes from last year in this one letter.  Congress decided to pass 9 major tax bills last year so there is just no way to get it all in one summary.