Tax Incentives For Small Business Owners

Small Business Tax Fairness and Simplification Act of 2007 - Amends the Internal Revenue Code to:
(1) allow self-employed individuals to participate in cafeteria pension plans;
(2) allow long-term care insurance under cafeteria plans and flexible spending arrangements;
(3) allow accelerated amortization of certain intangible assets (e.g., good will) acquired from a small business;
(4) increase the tax exclusion of gain from the sale of certain small business stock;
(5) provide a $2,500 standard tax deduction for home business expenses;
(6) permit certain small businesses to elect a taxable year ending in a month from April to November;
(7) increase the allowable number of S corporation shareholders; and
(8) exempt certain small businesses from withholding of tax requirements for payments made by government entities.

If you need help preparing your business tax returns, call a tax professional that will ensure you receive all the appropriate tax credits on your returns.

Tax Hints For 2008

The Tax Hints (Publication 4437) for Fiscal Year 2008 features a new approach to this online newsletter for tax professionals. Beginning with this edition Tax Hints (Pub 4437) will be updated periodically, year-round, its title becoming simply Tax Hints.
If new developments occur after the latest edition has been posted that are of significance to the tax professional community, a revised edition may be posted before the next regularly scheduled monthly update. The date of the current revision will always be on the front page, and previous editions will be archived.
Tax Hints provides most information through HTML links to irs.gov websites and other electronic information sources, so you always have access to the most up to date information, gathered, as always, in one convenient downloadable document.
Your Tax Hints editor and staff request that all tax professionals let us know if there is a data item or information source you routinely use that you are not finding in this newsletter so we can try to include our audience needs. Likewise, all business units should consider what information our tax professionals need to know about your division or unit and forward that information, including the appropriate hotlink on irs.gov, to the Tax Hints staff.

Fees To Set Up Installment Agreements

The IRS charges a user fee to set up your installment agreement. The user fee for new installment agreements entered into after January 1, 2007 is $105 and $52 for agreements where payments are deducted directly from your bank account. Taxpayers with income at or below established levels, based on the Department of Health and Human Services poverty guidelines, can apply and be qualified to pay a reduced user fee of $43 for establishing new agreements including agreements where payments are deducted directly from your bank account. Information about requesting the reduced user fee will be included in installment agreement acceptance letter sent to individuals.
There is also a user fee of $45 effective January 1, 2007 regardless of income level for reinstating defaulted agreements or restructuring existing agreements. If you already have an approved installment agreement from a previous tax debt and your financial situation has changed, we may be able to modify or restructure your installment agreement to include additional amounts owed into one agreement.

John McCain and his propsed tax cuts

New Tax Cuts:
Increase the dependent exemption by two-thirds (phased in by 2016)
Convert Research and Development credit to 10 percent of wages incurred for Research and Development, make permanent

Capitol Gains:
Make permanent current rates on capital gains and dividends, (0 and 15 percent)

Alternative Minimum Tax:
Make permanent current rates on capital gains and dividends, (0 and 15 percent)

Estate Tax:
Make permanent estate tax with $5 million exemption and 15 percent rate

Simplification:
Create optional alternative tax with two rates and larger standard deduction and personal exemption

Revenue Raisers and Tax Havens:
Repeal domestic production activities deduction
Eliminate oil and gas loopholes
Unspecified corporate base broadeners

Health:
Replace exclusion from income for employer sponsored health insurance with refundable credit of $2,500 for individuals and $5,000 for families who purchase qualifying health insurance

Other:
Ban internet and cell phone taxes

Hope and Lifetime Learning Credits for 2008

Beginning in 2008, the following changes apply to the Hope and lifetime learning (education) credits:

Income limits for credit reduction increased. For 2008, the amount of your Hope or lifetime learning credit is phased out (gradually reduced) if your modified adjusted gross income (MAGI) is between $48,000 and $58,000 ($96,000 and $116,000 if you file a joint return). You cannot claim an education credit if your MAGI is $58,000 or more ($116,000 or more if you file a joint return).

Hope credit. Beginning in 2008, the amount of the Hope credit (per eligible student) is the sum of:
100% of the first $1,200 of qualified education expenses you paid for the eligible student, and
50% of the next $1,200 of qualified education expenses you paid for that student.
The maximum amount of Hope credit you can claim in 2008 is $1,800 per student

The IRS Will Address Technical Terminations of Certain Publicly Traded Partnerships

The Internal Revenue Service announced today that it plans to issue guidance regarding technical terminations of a publicly traded partnership (PTP) resulting in multiple short tax years within one calendar year.

Technical terminations of PTPs resulting in multiple short tax years within a calendar year can cause considerable problems for taxpayers. This issue is being worked through the Industry Issue Resolution (IIR) program, and taxpayers who follow the resulting guidance can avoid time consuming audits.

The issue that the IIR program is considering arises when more than 50 percent of a PTP's capital and profits interest are sold or exchanged within a 12-month period, thereby resulting in a technical termination of the partnership under section 708(b) of the Internal Revenue Code. For the calendar year in which it occurs, a technical termination results in the PTP having two short tax years. Consequently, the PTP is required to file a Form 1065, “U.S. Partnership Return of Income,” for each short tax year. This requirement can cause tax problems for the partnership.

The IIR Program provides guidance to help clarify complex tax issues. This program can provide a greater level of certainty for taxpayers, which is important in today's business environment.

Since its inception in 2000, the IIR program has resulted in resolution of many different tax issues cumulatively affecting thousands of taxpayers in many different lines of business. For each issue selected, a multi-functional team gathers and analyzes the relevant facts and recommends guidance.

At any time, business associations and taxpayers may submit business tax issues that they believe could be resolved through the IIR program. IIR project selection criteria and submission procedures are outlined in Revenue Procedure 2003-36, which is available on the IRS Web site at http://www.irs.gov/. The IRS reviews submissions at least semi-annually, with the next review to be on submissions received by Aug. 31, 2008. Attached is detailed information regarding the issues the IRS considered during its latest review of IIR submissions.

Stimulus Payments For Veterans,Social Security,Railroad Retirement

For people who have no tax liability and who have no requirement to file a tax return because their income is too low or nontaxable there is a stimulus payment of up to $300 ($600 for married couples) plus the $300 payment for each qualifying child. However, people in this situation must have at least $3,000 in qualifying income from earned income, nontaxable combat pay as well as certain benefits from Social Security, Veterans Affairs and Railroad Retirement.

Qualifying income from Social Security includes retirement, disability and survivor benefits. Supplemental Security Income is not a qualifying income.
Qualifying income from Veterans Affairs includes disability compensation, disability pension and survivor benefits. Qualifying Railroad Retirement Board benefits include the social security equivalent portion of Tier I benefits.

Also, those who are dependents or eligible to be dependents on another’s tax return are not eligible. People must have a valid Social Security Number unless their spouse is a member of the military.