The calendar says January, and that means it's time for business owners to start gathering up their tax records from the previous year and make an appointment with their CPA or tax advisor. But while you may be fretting about whether you'll get a tax refund or have to pay Uncle Sam for the 2007 tax year, it's not too early to look at the present and see what tax changes the IRS and the State of Oregon have made that could impact you and your business in 2008.
"There are a number of new tax laws and changes that could affect businesses and individuals," said Dan Garrison, a longtime Certified Public Accountant in south Columbia County.
Here are some of the tax changes for 2008, courtesy of Garrison.
New employee tax credit
Businesses can earn a work opportunity tax credit on their federal taxes by hiring military veterans, a member of a family that has been receiving welfare benefits, or an ex-felon. The position can be either full- or part-time. To qualify for the tax credit, the potential employee must be "screened" through the state Employment Department, Garrison said.
Whether or not you operate a business, if you make a charitable contribution, you'll need documentation of the amount and to whom it was given, in order to deduct the amount from your taxes. "Any donations will have to be supported by a receipt or cancelled check," Garrison noted.
All non-profits must file
In order to keep better track of non-profit organizations, the IRS now requires all non-profits to file just like any other tax payer, even if the organization's fiscal year ends after December 31.
Deductions for retirement plans
New rules go into effect this year that benefit the self-employed and others who contribute to a Roth Individual Retirement Account. Also, persons over age 50 can benefit tax-wise if they make additional ("catch-up") contributions to their retirement plan.
Persons who participated in an employer-sponsored retirement plan that went defunct, (think Enron,) can deduct from their taxes contributions of up to $3,000 to a new retirement plan.
The maximum amount of self-employment income subject to Social Security taxes will increase to about $102,000, up from $97,500 in 2007. The full rate applies to the first $102,000 of self-employment income; after that only the 2.9 percent Medicare tax applies.
Other business expenses
Business owners will be able to deduct more of their out-of-pocket expenses for new equipment purchased in 2008, while the standard business mileage rate also increases over 2007.
Alternative Minimum Tax:
Congress gives taxpayers a reprieve
Millions of taxpayers received a last-minute Christmas gift from Congress, when lawmakers postponed for one year an expansion of the Alternative Minimum Tax.
Without the action, which came in the final days of the 2007 congressional session, some 25 million tax payers faced paying more taxes on their 2007 income, up from about 4 million who paid the tax the previous year.
Congress enacted the AMT in 1969 to prevent very wealthy investors from using deductions and tax shelters to avoid paying any income tax. The alternative tax has affected a growing number of middle-class taxpayers in recent years because the original law was not indexed to inflation.
The measure approved by Congress in mid-December increases slightly the amount of income that is exempt from the alternative tax.
The AMT requires taxpayers, mostly those who itemize their deductions, to make separate calculations and to pay the higher amount.