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Date:
February 22, 2008 |
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Blue
& Co., LLC
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2008 Economic Stimulus Package
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On February 13, 2008, President Bush
signed into law a $152-billion economic stimulus package aimed at temporarily
boosting consumer spending and business investment. The Economic
Stimulus Act of 2008 is intended to jump-start our economy through the
government's issuance of rebate checks to most Americans and through tax
incentives aimed at encouraging businesses to increase their investments in
new equipment by the end of 2008. The stimulus package will bring tax
rebates of $600 for individuals and $1,200 for couples to most taxpayers and
$300 checks to low-income people, including disabled veterans and the
elderly. Parents and anyone else eligible for a stimulus rebate will
also receive an additional $300 for each qualifying child. A qualifying
child is generally a dependent child who is under age 17 at the end of 2007. IRS stresses that most people won't
have to take any extra steps to be entitled to a Stimulus Act refund, which
IRS will begin mailing in May of 2008. IRS will use the 2007 tax return
to determine eligibility and calculate the basic amount of the payment. The amount of the rebate credit
(both the basic and qualifying child amounts) will phase out at a rate of 5%
of adjusted gross income (AGI) above $75,000 ($150,000 for joint
returns). For joint filers with no children who would otherwise get the
maximum $1,200 basic credit, the credit will be entirely lost at AGI of
$174,000. A single filer with no children who would otherwise get the
maximum $600 basic credit will lose the entire credit at AGI of $87,000. For businesses, the stimulus package
will allow small businesses to write off up to $250,000 of qualifying new and
used tangible property purchased in 2008. In addition, businesses will
be able to write off an additional 50% of the cost of new equipment placed in
service by the end of 2008. The otherwise applicable “luxury auto” cap
on first-year depreciation is increased by $8,000 for vehicles that qualify. Boosted section 179 expensing.
Under pre-Act
law, taxpayers can expense (i.e., deduct currently, as opposed to taking
depreciation deductions over a period of years) up to $128,000 for
2008. This annual expensing limit is reduced (but not below zero) by
the amount by which the cost of qualifying property placed in service during
2008 exceeds $510,000. The amount of the expensing deduction is limited
to the amount of taxable income from any of the taxpayer's active trades or
businesses. Under the Act, for tax years beginning in 2008, the
$128,000 expensing limit is increased to $250,000, and the overall investment
limit is increased from $510,000 to $800,000. As a result of this incentive, most
small businesses, and even some moderate-sized businesses with moderate
capital equipment needs, will be able to obtain a full deduction for the cost
of business machinery and equipment purchased in 2008, thereby reducing their
effective cost for those assets. What's more, there is no alternative
minimum tax (AMT) adjustment with respect to property expensed under Code Sec.
179. Bonus depreciation makes a comeback. Bonus first year depreciation
was first allowed following the terrorist attacks of 2001 but generally isn't
available for property acquired after 2004. (There are some exceptions,
such as for qualified GO Zone property generally placed in service before
2008.) The Act provides for bonus
(accelerated) depreciation by allowing a bonus first-year depreciation
deduction of 50% of the adjusted basis of qualified property placed in
service after December 31, 2007, and, generally, before January 1,
2009. The basis of the property and the depreciation allowances in the
year the property is placed in service and later years are appropriately
adjusted to reflect the additional first-year depreciation deduction. The
amount of the additional first-year depreciation deduction is not affected by
a short taxable year. The taxpayer may elect out of additional
first-year depreciation for any class of property for any taxable year.
Bonus depreciation is allowed for AMT purposes as well as for regular tax
purposes. Original use of the property must begin with the taxpayer
after December 31, 2007. We hope this information is
helpful. If you would like more details about these aspects or any
other aspect of the new law, please do not hesitate to call. Very truly yours,
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