JUMP, SCUTELLARO AND COMPANY, LLP
TAX BRIEFING ON THE
ECONOMIC STIMULUS PACKAGE ACT OF 2008
Recovery rebates
Eligible individuals will begin receiving rebate checks starting in May for individuals that file their 2007 tax returns by April 15th; payments will continue throughout the year for late filers and stop on December 31, 2008. Stimulus payments will be direct deposited for the taxpayers selecting that option when filing their 2007 tax returns.
The amount of the rebate will generally be the lesser of $600 ($1,200 if filing jointly) or your 2007 income tax liability after credits. However, even if your 2007 tax liability is less than $300 ($600 if filing jointly), you may still be eligible for the minimum $300 rebate ($600 if filing jointly) provided you had at least a $1 of 2007 or 2008 tax liability or at least $3,000 of qualifying gross income. Qualifying gross income consists of earned income such as wages and self-employment income as well as Social Security benefits, veterans’ disability compensation, pension or survivors’ benefits.
In addition, the rebate for taxpayers with dependent children will be increased by $300 per qualifying child. A qualifying child must not have reached the age of 17 before the end of 2007 and must have a Social Security number. However, the rebates begin to phase out for taxpayers with a 2007 adjusted gross income (AGI) of at least $75,000 ($150,000 for a joint return).
Note that the recovery rebates, while based on your 2007 tax return, but are technically an advance on your income tax liability for 2008. Thus, when filing your 2008 tax return in 2009, those who didn’t receive the maximum possible rebate because their income was too low or too high get a second chance based on the figures on their 2008 return. The good news is that no one will be required to give back any rebate received. Therefore please make sure to give us any tax information related to your children or parents, even if they have never filed a tax return before since it may make sense for them to do so in 2007 or 2008.
Incentives for business investment
To spur additional investment, the act increases the Section 179 limit for initial year expensing to $250,000 (from $128,000). The Sec. 179 expensing election allows a current deduction for newly acquired assets that otherwise would have to be depreciated over a number of years. Because this tax break is designed to benefit primarily smaller businesses, the expensing election begins to phase out dollar for dollar when total asset acquisitions for the tax year exceed $800,000 (up from $510,000 before the act). The new higher limit applies for calendar year 2008 or a business’s fiscal year that begins in 2008. As in the past, a business can claim the expensing election currently only to offset its net income, not to reduce net income below zero.
Another depreciation-related provision offers a special allowance for certain property, generally if acquired this year. This is in addition to any such property that qualifies for Sec. 179 expensing. For eligible property, the special depreciation amount is equal to 50% of its adjusted basis.
Because both the Sec. 179 limit increases and the 50% depreciation allowance can provide large 2008 deductions, you may want to consider making major asset purchases this year. Please give us a call if you have any questions about the 2008 rebates or the new depreciation deductions and we will be happy to help.
Sincerely,
Jump, Scutellaro and Company LLP