Tax Tips and Highlights for 2008 – 2009

New Rule for Kiddie Tax The age limit was raised from 14 to 18 for a child’s unearned income over $1,900 to be taxed at the parent’s rate.

Increased Code Section 179 expensing For 2008, the maximum annual expensing amount is $250,000, for purchases up to $800,000.

Payroll Tax Issues

In November of 2008, you should have received “Your Year 2009 Federal Tax Deposit Requirements” from the IRS, your annual Unemployment Compensation Tax Rate Notice for 2009, and notification from the state if you are required to file unemployment forms and taxes electronically. These notices should be forwarded to your payroll preparer.

Beginning July 24, 2009, the Federal minimum wage increases from $6.55 to $7.25 with certain states increasing their minimum wage even more, i.e. Florida minimum wage will increase January 1, 2009 from $6.79 to $7.21 and again to $7.25 on July 24, 2009 for hourly employees and tipped employees increase from $3.77 to $4.19, even though the Federal minimum wage for tipped employees is $2.13 per hour.

The taxable wage base for Social Security in 2008 was $102,000 and increased to $106,800 in 2009, making the maximum social security tax $6,621.60 (6.2%). Medicare wages are taxed at 1.45% with no limit. Wages paid to a son or daughter under the age of 18 are exempt from social security and FUTA taxes. Bonus checks are considered earned income and are subject to payroll taxes, as well as per diem expense reimbursements. The IRS requires employers to track expense reimbursements in excess of federal per diem rates.

IRS maintains a zero tolerance for incorrect W-2s and 1099s. A $50 penalty per incorrect form could be assessed against employers whose forms have mismatched names and social security numbers. You can verify up to five names and numbers by calling the SSA at 1-800-772-6270 or visiting their website at www.ssa.gov/employer for larger groups.

Employee versus Independent Contractor

Under common-law rules, an individual generally is an employee if the company he works for has the right to control and direct him regarding the job he is to do and how he is to do it. Otherwise, he is an independent contractor. Qualified real estate agents and certain direct sellers are considered statutory independent contractors, not employees for purposes of wage withholding, FICA or FUTA, and the income tax rules in general.

Any individual independent contractor receiving compensation over $600 for the year must be issued a 1099-MISC. In addition, ALL attorneys who received ANY amount of payment must be issued a 1099-MISC as well.

Company Provided Vehicles

Employees should be taxed for the personal use of any employer provided vehicle. Specifically, the employee’s gross income on Form W-2 is increased to the extent the fair market value of this benefit exceeds the amount paid, if any, by the employee. This fringe benefit is subject to payroll taxes and should be withheld from the employee’s salary by year-end.

2009 Standard Mileage Rates

For the business use of a car, van or truck use 55 cents per mile for 2009. When computing deductible medical or moving expenses, use 24 cents per mile. You may also deduct 14 cents per mile when providing services to a charitable organization.

Qualified Pension Plan Contribution Limits for 2008 and 2009

There are several employer-sponsored tax-deferred retirement plans that were affected by 2001 legislation, all of which have increased contribution limits. The most common is the 401(k) having a contribution limit of $15,500 for 2008 and $16,500 for 2009. Many of the plans also have “catch-up” contributions for employees age 50 or older.

Personal dependency exemption (Pde) and annual gift exclusion

The Pde for 2008 is $3,500 and rises to $3,650 for 2009. The annual gift exclusion of $12,000 in 2008 rises to $13,000 for 2009.

Please keep in mind that we’ve described only highlights and some of the changes in the tax rules. There are many more questions and opportunities for proper tax planning. Please give us a call on how you may be affected by these important tax issues.