This is the first in a three-part series reviewing tax planning strategies for the new year.  Today we will review some of the major tax law changes that will affect individuals and business owners in 2008.

Whether you are a business owner or you work for a business, the beginning of a new year provides an excellent opportunity to review one’s financial situation, address its weaknesses and set realistic goals for 2008.  Part of that process is making yourself aware of changes in the IRS tax code for 2008.

Many people simply do tax preparation.  They gather their tax documents in March or April, head to H & R Block, get their refund (or, in some cases, pay what is owed) and quickly put it aside until the same time next year.  Do one better in 2008.  Be proactive.  Do tax planning.  By making yourself aware of the changes that may apply to you, you will be able to make sure that you are optimizing your tax savings throughout the year, not just at tax time.  And, always be sure to consult with your tax professional or CPA for further details before making any decisions.
Here are a few of the major tax law changes for 2008.

• Increased IRA Contribution Limits: The maximum IRA (Traditional or Roth) contribution will increase from $4,000 to $5,000 for 2008. Filers who reach the age of 50 before the end of 2008 can contribute up to $6,000
• Tax-Free Parking: For many of you who work in metropolitan areas (DC, Chicago, New York), getting to work is often a costly and time-consuming endeavor. As a response, many companies now offer a “subsidized” parking benefit as one of their employee perks. Beginning in 2008, employers are not taxed on up to $220 a month of employer-paid parking, up $5 from 2007. The cap on tax-free transit passes their employers can give rise to $115 a month, up $5 a month from 20067. To learn more about other tax-free transit opportunities by clicking here.
• Capital Gains Tax Rates: A capital gain is the profit that results from the sale or exchange of a capital asset over its purchase price. In other words, if you sell something (an asset) for more than what you paid for it (cost basis), you will have to pay a tax on the profit (capital gain). This would include the sale of virtually any asset, including automobiles, furniture, homes, and any securities (stocks, bonds, mutual funds) Prior to 2008, long-term capital gains from the sale of assets held longer than one year were taxed at a maximum rate of 5%, assuming the seller was in the 10 or 15% tax bracket. In 2008, this 5% maximum has been eliminated until 2010. The 15% tax on long term capital gains stays the same.
• Increased Section 179 Expense Deduction: Recent legislation will allow business owners to place in service (depreciate) up to $128,000 of equipment in 2008. These assets must be tangible, depreciable personal property and acquired for use in the active conduct for business. Common examples include machinery, computers and office equipment. This is up $3,000 from 2007 .

Tomorrow, we will review some of the ways first-time business owners can make their 2007 tax preparation process headache-free.

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