2008 Tax Updates

Tax Updates to keep you prepared for 2008.

2008 Payroll Tax Information

For those who prepare payroll, the following is effective January 1, 2008:

Minimum wage increases to $8.00 per hour.
FICA and Medicare withholding remains at 7.65% (6.2% for FICA and 1.45% for Medicare) for both employees and employers. The FICA limit is increased to $102,000. Medicare will be charged to the employee and employer for all wages with no upper limit.
FUTA wage limitations remain the same at $7,000 at 0.8%.
State disability insurance (SDI) increases to 0.8% with the limit increasing to $86,698 of wages.
Please watch for your EDD notice for SUI rates, this is employer specific, and will need to be changed in your software.
New Form I-9 issued by U.S. Citizenship & Immigration Services. Each new employee should have an I-9 and a W-4 in their employee records.

New Tax Changes - 2007

In 2007, ALL charitable contributions must have a proof of receipt otherwise they may not be deducted.
For 2007, a one time distribution from IRA can be made to HSA's.
Tuition Deduction, Educator deduction of $250 and sales tax deduction extended through 2007.
Business mileage rate for 2007 is 48.5¢ per mile.
Medical and Moving mileage rate for 2007 is 20¢ per mile.
Charitable mileage rate is 14¢ per mile.
Maximum wages subject to social security tax is $97,500 for 2007.
Social security earnings limit – under age 65, $12,960; 65 and over, no limit.
Mortgage insurance deduction on a qualified personal residence, phases out ratably by 10% for each $1,000 over $100,000 AGI, unavailable if AGI exceeds $110,000.
Equipment purchases expensing limit for 2007 - $125,000 ($25.000 for qualified SUVs). Total qualified purchases cannot exceed $500,000. The California deduction remains at $25,000 and phases out at $200,000.
An IRA owner, age 70½ or over, can directly transfer tax-free, up to $100,000 in 2007 to an eligible charitable organization.
Small exempt organizations (under $25,000 in revenue) must file new form 990-N beginning in 2007.

New Tax Changes - 2008

Key developments for the 2008 tax year include the following:

Business mileage rate is 50.5¢ per mile for 2008.
Medical and Moving mileage rate is 19¢ per mile for 2008.
Charitable mileage rate is 14¢ per mile.
The 5% tax rate on net capital gains and qualified dividend income for tax year 2007 drops to 0% for 2008. This means that gains and dividends that otherwise would be taxed in the two lowest ordinary tax brackets (10% and 15%) will not be subject to federal income tax. The 0% rate is scheduled to continue through tax years 2009 and 2010.
The contribution limit for individual retirement accounts (both traditional and Roth) increases to $5,000 for 2008. A “catch up” provision permits an additional contribution of up to $1,000 by individuals who are at least age 50 in 2008.
Distributions from certain retirement plans may be rolled over into Roth IRAs, starting in 2008. Certain requirements apply.
The kiddie tax applies to children who are 19 years old or who are full-time students over age 18 but under age 24 with investment income.
Eligible taxpayers may elect under Section 179 of the tax code to deduct as a business expense the cost of new or used assets placed in service in 2008, as opposed to claiming depreciation, up to a maximum of $128,000 (limit reflects estimated inflation adjustment).

Important Information for 1099 Filers

A 1099 must be issued and sent to recipients or the IRS may disallow the deduction. 1099’s are due to the recipients by 1/31/08 and to the IRS by 2/28/08 to avoid penalties. If a 1099-Misc. for services is required to be filed, the payer must also report to the state of CA, EDD, on Form DE 542 within 20 days of paying either $600 or more, or entering into a contract for $600 or more.

** For those who need it, our Federal I.D. Number is 77-0457760 **

See 2007 Tax Updates

See 2006 Tax Updates