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Tax Tips Newsletter
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January 2008 - Vol 3, Issue 1
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Greetings!
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Happy New Year! I hope that 2008 will bring you good health and happiness.

Since many of you will be sending in your tax information soon, I wanted to list some common mistakes that clients make when sending their data in to our office:

  1. Don't use the organizer. This causes me a great deal of extra time having to ask you about missing data.
  2. Don't update your contact information. I don't always remember that you moved.
  3. Don't tell us about new dependents.
  4. Car registration fees.
  5. Incorrect information regarding estimated taxes paid. This is the number one reason I get letters from the IRS and FTB.
  6. Poor records
  7. Quicken or Quickbooks files have problems.
  8. No backup data for contributions. This year I MUST have this information.
Also, please read the letters that came with your organizer. Pay close attention to the date that I must receive your information by in order to meet the filing deadlines.

1040 with broken pencil
In last-minute 2007 legislation, Congress passed a one-year "patch" to the alternative minimum tax (AMT). Without this legislation, an estimated 25 million taxpayers would have had to pay an average $2,000 in additional taxes for 2007.

The alternative minimum tax is a separate tax calculation that disallows many of the deductions and credits that are allowed under the regular income tax system. Created originally to prevent the very rich from using tax breaks to eliminate their tax liability, the AMT exemption amount was not adjusted annually for inflation. As a result, more and more taxpayers have found themselves subject to the higher AMT. For the last several years, Congress has provided these AMT "patches" to keep millions of middle-income Americans from facing a tax hike that was never intended to hit them.

The "Tax Increase Prevention Act of 2007," signed by President Bush on December 26, 2007, extends through 2007 AMT relief for nonrefundable personal credits and increases the 2007 AMT exemption amount to $66,250 for joint filers and to $44,350 for single filers.

The IRS must now revise 12 forms affected by the AMT and reprogram its computers for the recent change. Those who file their 2007 tax returns early this year are likely to experience refund delays. The IRS has advised that their software will not be able to accept returns until around the middle of February.
BMW
The IRS has announced new standard mileage rates for 2008.
* 50.5 cents a mile for business use.
* 19 cents a mile for medical or moving expenses.
* 14 cents a mile for charitable use.

BUSINESS USE. You can generally claim the standard mileage rate when using your vehicle for business travel (other than commuting to work). Most people find it easier to use the standard rate than to keep track of specific costs for gasoline, service, and repairs. The deduction rules for business use of a vehicle can be complicated, so you may want to get details if you travel for business.

MEDICAL, MOVING, AND CHARITABLE USES. You can also claim mileage as part of your itemized deductions for medical or charitable expenses. (Examples: using your car to travel to a doctor's appointment or driving your car in your charitable work).

Even if you don't itemize, you may still be able to deduct mileage costs as part of your moving expenses. Not all moves qualify for the deduction, though, so check to see if your move meets the deduction requirements.

RECORDKEEPING. You must keep supporting records if you claim any of these deductions. Generally, you should record the date, beginning and ending odometer readings, itinerary, and purpose for each use. The easiest way to keep good records is to buy an inexpensive mileage log at your local office supply store. Get in the habit of completing the log after each trip you make.

For assistance with this or any of your tax concerns, give me a call.
Pig with money in background
W-2s are due to your employees by January 31, 2008. In addition, you MUST notify them, within 1 week before or after issuing them their W-2s that they may be eligible for the Earned Income Tax Credit (EITC). This is a California law effective 1/1/08 and pertains to all employees, regardless of their income. More information is available at: Link to EDD website re EITC notification

1099's are due to vendors by January 31, 2008. They are due to the IRS by February 28, 2008. This includes 1099's to vendors if you own rental property. The IRS and Franchise Tax Board may disallow any deductions that should have been reported on a 1099, for which no 1099 was issued. I have heard from the Franchise Tax Board that they are disallowing deductions if there was not a 1099 issued! If you have any questions regarding 1099s, please contact me.

If you hire a new employee or hire an independent contractor that you will pay over $600 to in California, you must file a form with the Employment Development Department. You will have to file a DE34 within 20 days of hiring a new employee. You will have to file a DE542 when you have determined that your will pay an independent contractor over $600.00. The DE542 has to be refiled each year. In addition, if you are using the services of an independent contractor that is out of California, you may be required to withhold California income taxes. For more information, contact me or go to the Employment Develoment Department

You should be aware that both the IRS and EDD have forms for independent contractors to fill out and send to the IRS and EDD to ask if they should be classified as employees. This could potentially open up a huge can of worms for people who thought that they had contracted with independent contractors and will be having to reclassify them as employees.
Golden Egg
The Tax Tip this week deals has some additional information regarding the delays in processing returns with alternative minimum tax this tax season.

The Business Tip of the Month deals with tips for avoiding hazards in rapid business growth.

The Financial Tip of the Month is how to avoid impulse buying.

The Fraud Alert this month has to do with various Income Tax scams that are floating around this time of year.

Photos © Bigstockphotos.com, istockphoto.com

Sincerely,
Linda Heineman
Linda L. Heineman, CPA, CITP

phone: 626-577-0979
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