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2008
Tax Law Changes
Many of the changes
to the tax code in 2008 can be traced to the sweeping
tax cuts approved by Congress back in 2002. However, some changes were directly impacted by the dramatic rise in energy costs, as well as the economic downturn that started in 2008.
Below is a summary
of the major 2008 tax law changes:
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Mileage
Rates Increased
Energy costs soared in 2008, and the IRS adjusted mileage rates in the middle of the year to reflect those increased costs.
For miles driven for business use between January 1st and June 30th, the IRS provides a standard mileage rate of 50.5 cents per mile. For any miles driven between July 1, 2008 and December 31, 2008, the standard mileage rate was boosted to 58.5 cents per mile. That's a huge increase over the 48.5 cents per mile allowed in 2007.
The deductions for medical and move-related mileage was also adjusted mid-year. If
you used your car to get medical care or to move in the first half of 2008, you can deduct
19 cents per mile. For all miles driven from July 1st to December 31st, you can deduct 27 cents per mile. This rate also was increased over last year's 20 cents per mile.
Taxpayers who used their car to provide charitable services to a qualified charitable organization can still receive credit for their mileage. That rate is 14 cents per mile, and remained unchanged from last year.
It's
important to keep proper documentation to support your deductions.
Ensure that you record begin and end odometer readings, the date
that you made the travel, and the specific reason for claiming the
mileage rate deduction. Common financial software like Quicken can help keep track of these.
On the horizon, mileage rates in continue increasing. In 2009, the standard business mileage rate deduction will increase to 55 cents
per mile, while the deduction for miles driving for medical or moving
will be 24 cents per mile. |
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Increase in Penalties for Failure to File Income Tax Return
It's getting more expensive if you fail to file your returns in your timely manner.
Taxpayers who do not file their returns by the due date (including any extensions filed) may have to pay a failure-to-file penalty. The failure-to-file penalty is $135 or 100% of the unpaid tax, whichever amount is smaller. This penalty typically kicks in when a tax return is 60 days or more overdue.
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Standard
Deduction Increased
For
most people who don't itemize deductions, the basic standard deduction
increased in 2007 to:
- $8,000
for head of household (up from $7,850 in 2007)
- $10,900
for Married taxpayers filing jointly and qualifying widows or
widowers (up from $10,700 in 2007)
- $5,450
for married taxpayers filing separately (up from $5,350 in 2007)
- $5,450
for single people (up from $5,350 in 2007)
These
deducations will not apply if someone can claim you as a dependant. |
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Exemptions
Increased in 2008
The
amount you can deduct for each exemption has increased $100 to $3,500
in 2008.
You
lose all or part of the exemptions if your Adjusted Gross Income
is above a certain amount. For tax year 2008, the phaseout begins
at:
- $119,975 - Married persons filing separately (up from $117,300 in 2007).
- $159,950 - Single individuals (up from $156,400 in 2007).
- $199,500 - Heads of households (up from $195,500 in 2007).
- $239,950 - Married persons filing jointly, or qualifying widows and widowers (up from $234,600 in 2007).
Starting this year, you can lose no more than 1/3 of the dollar amount of your exemptions. Basically, each exemption cannot be reduced to below $2,333.
Download Form 1040 for more details. |
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Social Security and Medicare Taxes
The IRS has raised the amount of income subject to social security tax. In 2008, the maximum amount of wages subject to social security tax is $102,000. For individuals earning more than that, social security withholdings should cease for all wages above the $102,000 level. For Medicare tax, all covered wages are subject to the tax.
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Want to see all the
changes spelled out? Additional 2008 changes are outlined in IRS Publication
553.
All
information is believed accurate at time of transmission, and no tax advice
is implied. Always consult your tax professional if you have questions.
For
more legal information, please click
here.
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