Changes for 2008

Long-term Capital Gains: The 5% tax rate on long-term capital gains is reduced to 0.  Yes, you read that right.  Zero.  This special rate is available to taxpayers in the 10 or 15% tax brackets.  (This is taxable income (after deductions) of $32,550 or less, $65,100 or less on Married Filing Joint returns.)  This rate will continue to apply through 2010.  For taxpayers in higher tax brackets, the long-term capital gain rate is still 15%.

Kiddie Tax: If you have kids with investment income, this one’s for you.  If a child has investment income greater than $1,800, some of their income is taxable at their parent’s tax rate.  The definition of ‘child’ for this tax was formerly ‘under 14’.  Now it applies to kids under the age of 19 and kids under the age of 24 that are full time students at least 5 months of the year.

Charitable Donations: This was new for 2007, but it’s worth repeating.  All charitable donations MUST be supported by bank records (cancelled checks) or receipts from the charity.  Logs to track cash donations are no longer sufficient.  For non-cash contributions (clothing, household goods, etc.), items must be in “good or better” condition in order to be deductible.

IRA Contributions: In 2008, the maximum IRA contribution has risen to $5,000.  If you are interested in making a contribution, please ask how it will affect your tax situation and whether Traditional or Roth contributions would be more beneficial.

If you have any questions about how these or other tax law changes affect you, please contact us for a complimentary planning appointment.