ROGER A. KAHAN, CPA
Tax, Business and Financial Advisor
Serving the tax and financial needs of
individuals and small to medium businesses
almost anywhere in the USA
500 North Main Street, Suite E
Randolph, MA 02368-6700
VOICE: 781.963.RAK-1   www.RAK-1.com   e-mail: kahan@RAK-1.com
Copyright ^©2008 Roger A. Kahan, CPA -  ALL RIGHTS RESERVED

TOPICS COVERED IN THIS ISSUE:

Standard mileage rates
Relief for Tax Stimulus
A real tax benefit
If Internal Revenue Service or Department of Revenue calls
Underreported income
Charitable contributions
Property tax assessments
The Rule of 72

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STANDARD MILEAGE RATES

Beginning Jan. 1, 2008, the standard mileage rates for the use of a car (including vans, pickups or panel trucks) will be:

• 50.5 cents per mile for business miles driven;
• 19 cents per mile driven for medical or moving purposes; and
• 14 cents per mile driven in service to a charitable organization.

The new rate for business miles compares to a rate of 44.5 cents per mile for 2007.  The new rate for medical and moving purposes compares to 18 cents in 2006. The primary reasons for the higher rates were higher prices for vehicles and fuel during the year ending in October.
 
The standard mileage rates for business, medical and moving purposes are based on an annual study of the fixed and variable costs of operating an automobile. Runzheimer International, an independent contractor, conducted the study for the IRS.

The mileage rate for charitable miles is set by statute.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS), after claiming a Section 179 deduction for that vehicle, for any vehicle used for hire or for more than four vehicles used simultaneously.  Revenue Procedure 2006-49 contains additional information on these standard mileage rates.

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Relief for Stimulus Payments Withdrawn from IRAs and Tax-Favored Accounts

WASHINGTON Economic stimulus payments directly deposited into IRAs and other tax-favored accounts may be withdrawn tax-free and penalty-free, the Internal Revenue Service announced today.

This relief is designed to help taxpayers who may have been unaware that by choosing direct deposit for their entire regular tax refund, they were also choosing to have their stimulus payment directly deposited as well. If a taxpayer elected a split refund, however, their stimulus payment will be paid by a paper check.

This relief is available for amounts withdrawn from these tax-favored accounts that are less than or equal to a taxpayers directly deposited stimulus payment.

To qualify for this relief, funds must be taken out by April 15, 2009, in most cases. Without this relief, taxes, penalties and other special rules would apply to amounts removed from these accounts. Regular refunds are not eligible for this relief.

Eligible tax-favored accounts include traditional and Roth IRAs, health savings accounts (HSAs), Archer MSAs, Coverdell education savings accounts (ESAs) and qualified tuition programs, also known as QTPs or 529 plans. Thus, for example, a taxpayer whose $1,200 stimulus payment is directly deposited into his or her IRA can take out anywhere up to $1,200 from the IRA, tax-free and penalty-free.

In general, the deadline for these withdrawals is the due date or extended due date for filing a 2008 return. This means April 15, 2009, for most taxpayers, or Oct. 15, 2009, for those who obtain tax-filing extensions.

Details on reporting these withdrawals and claiming relief will be included in tax forms and instructions for 2008.

Additionally, the Massachusetts Department of Revenue has agreed NOT to consider the stimulus payment as taxable income.  If you reside in another state, you will have to ask your state's tax department how they are handling it.

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A REAL TAX BENEFIT

If your home tax deductions do provide you with an income tax refund, you should consider adjusting your income tax withholding exemptions at work to allow you to bring more money home each pay period through an increase in your net pay.  That additional net payroll can help you pay the mortgage each month.  You can change your payroll withholding exemptions by visiting your payroll or your human resources department.  If they can’t show you how to do it, I can.

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“Planning for the future is a lot like planting a tree.  You’ve got to do it today if you want your family to enjoy it tomorrow.”

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IF IRS or Department of Revenue CALLS

The initial audit contact with a taxpayer from the Internal Revenue Service or the Department of Revenue may now come by telephone rather than by letter. A confirming letter will follow. Please remember, DO NOT divulge ANY tax information or personal information in a phone conversation or interview. First, it may not be the government at all (just someone trying to get your personal or business information), and second, if you really believe it is the government, you should inform the agent or revenue officer that you need to contact your tax advisor before you make an appointment for the audit or discuss any tax matters. Then call your tax advisor and give him or her a Power of Attorney (for tax matters) to represent you or your business.

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UNREPORTED INCOME

A common method that the Internal Revenue Service used to determine if you have reported all of your income is to examine all of your bank or brokerage statements for the year in question.  They add up all deposits and ask you to show where this amount appears within your income tax returns.  Loans, funds exchanged between account, gifts, etc. will be accepted as non-reportable income.  An agent may also inspect credit card accounts and bank loan statements to determine if payments made during the year to reduce the balance were made from sources other than you bank accounts.

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CHARITABLE CONTRIBUTIONS

Charitable contributions made to an organization cannot be earmarked for the benefit of a particular individual or family.  A common, but technically not allowable practice is for a church or synagogue to raise money for the benefit of a member who has suffered a tragedy.

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PROPERTY TAX ASSESSMENTS

Do not assume that your property tax assessment is correct, especially if your home's assessed value has changed drastically during an up and down swing in the real estate market.   If home values have decreased substantially since annual values were established, you may be entitled to an abatement.  Checking the correctness of the assessment may be easier than you think and may provide you with a decreased real estate tax bill.  Check the timing allowed to file for abatement (this should appear on your bill).

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THE RULE OF 72

The Rule of 72 is a saving rule of thumb that says your savings will double, approximately, in the number of years you determine by doing the following.

1.    Start with the number 72.
2.    Divide by the interest rate you earn on your deposits.

For example, if the interest rate you receive on your deposits is 7.2 percent, you should double your money in about 10 years:

1.    Start with the number 72.
2.    Divide by 7.2 to get a result of 10.

Your savings should double in 10 years.

Keep in mind that the Rule of 72 does not include taxes or inflation.  Also, the rule assumes that you compound your interest yearly at a fixed rate of return over a long period of time.  If you compound more frequently, you could save more or double your money sooner.

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Roger A. Kahan is a Certified Public Accountant, a Tax, Business and Financial Advisor serving the tax and financial needs of individuals and small to medium sized businesses primarily in eastern Massachusetts (as well as almost anywhere in the United States).  Roger is always seeking additional clients and other professional’s clients to advise and improve their personal or business life.  Do you know of someone that could use our professional services?  Please let us know if we can use your name in an introductory letter or phone call.  We do offer a referral fee to those that join our ever-increasing list of tax clients.  Call for more details.  Thank you.

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The Massachusetts Society of CPAs represents over 8,800 Certified Public Accountants working in public accounting, industry and business, or in government and education.

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REMEMBER:
         “It’s not what you make that COUNTS;  it’s what you keep!”