August/September 2008 Tax Tip

Additional Changes to the IRS Cents-Per-Mile Deduction

With fuel prices at record highs, the IRS has raised the standard mileage rate for business driving to 58.5 cents per mile starting July 1, 2008. This is an increase of 8 cents per mile. The mileage rate for 2009 will be announced in the fall.

The new mileage rate for medical and moving expenses will increase to 27 cents per mile for the second half of the year. This has also increased 8 cents per mile.

The rate for providing services for charitable organizations is set by law, so only Congress can change it, not by the IRS, and it remains at 14 cents per mile. Lawmakers have no plans to change it. Their last change was 2006 for Katrina-related driving.

June/July 2008 Tax Tip

IRS Simplifies IRA Transfer Rules

IRS notice 2008-30 now requires retirement plans such as 401(k)s and 403(b)s to allow participants to make a direct rollover of their distributions to a Roth IRA. Prior to 2008, those who wanted to convert plan account assets to a Roth IRA had to first transfer the funds to a traditional IRA and then make the conversion.

It's up to the participant to determine their eligibility to convert (modified adjusted gross income doesn't exceed $100,000). If the participant takes a distribution rather than making a direct conversion, the distribution will be subject to a 20% withholding tax.

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February/March 2008 Tax Tip

Changes to the IRS Cents-Per-Mile Deduction for 2008

There have been some changes to the IRS cents-per-mile deduction rates beginning January 1, 2008. Business use of a car is deductible at 50.5 cents per mile in 2008, up from 48.5 cents in 2007. The use of a car is deductible as a medical expense or moving expense at the rate of 19 cents per mile in 2008, down from 20 cents per mile in 2007. A car used for charitable purposes is deductible at the rate of 14 cents per mile in 2008, which did not change from 2007.

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October/November 2007 Tax Tip

Charitable Gifts Through Your IRA

Gifts to charity by direct transfer from an IRA can be made by people older than age 70-1/2, but only to the end of 2007.  The maximum for such gifts for the year is $100,000.

This is better than withdrawing funds from an IRA and then making a charitable gift with them that you then deduct, because with a direct transfer, no distribution from the IRA is included in your adjusted gross income (AGI).

A higher AGI may have costly consequences such as increasing the amount of Social Security benefits that are taxable.

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August/September 2007 Tax Tip

Municipal Bond Interest Not Always Tax Exempt

Avoid investing in "private activity" tax-exempt municipal bonds.  Interest paid on this type of bond is not tax exempt under AMT (Alternative Minimum Tax) when they are issued to benefit nongovernmental parties (such as constructing a sports stadium).

If you are in an AMT situation, make sure that all bond interest will be tax free under AMT before investing in a municipal bond or a bond fund.

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June/July 2007 Tax Tip

Tax-Free Income Loophole

Income earned in Health Savings Accounts (HSAs) accumulates tax free.  Contributions to HSAs are also deductible, and withdrawals are completely tax free when the money is used to pay medical expenses.

As an added bonus, contributions made by your employer to an HSA are free of payroll and income taxes.

If you would like to learn more, please contact our office and we can show you the advantages of using HSAs.

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April/May 2007 Tax Tip

Owners of Demutualized Insurance Companies

May Get a Tax Break

In recent years, many mutual insurance companies (those owned by their policyholders) have become corporations and have issued shares of stock to these policyholders.

In the event of a sale of these shares, the IRS and the insurance companies say owners have a zero basis, which means all of the proceeds are considered taxable.

But a new court decision (Eugene A. Fisher, Court of Federal Claims, No. 04-1726T) says owners likely have more than a  zero basis in shares received in a demutualization, though the court has not yet ruled how much.

This court case is still continuing and a final decision is not expected for quite some time.  We will keep you informed of the outcome as soon as a final decision is reached.

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February/March 2007 Tax Tip

Donate Appreciated Long-Term Stock

Instead of Cash to Your Favorite Charities

When you do this, you can deduct the full fair market value of the shares and owe no capital gains tax on the stock's buildup in value since you bought it.

Example:  You own 100 shares of stock, purchased 10 years ago for $15 per share.  When you donate the shares, now worth $50 each, to your favorite charity, you deduct the full $5,000 fair market value--not your $1,500 cost.  You also avoid paying capital gains tax on the $3,500 of appreciation in the shares.

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