eBulletin

eBulletin is a complimentary service to our clients and friends to provide individual and business tax information throughout the year via short emails. If you would like to receive our eBulletin, simply email Michelle Noonan at michellen@bb-cpa.com and insert "eBulletin" in the subject line. You will be added to the list. We do not share our lists.

eBulletin 2007-9

November 27, 2007

Automobile Standard Mileage Rates

The IRS has announced the standard mileage rates for use in the year 2008 to compute the deductible costs of operating an automobile. The rates are effective January 1, 2008. They are as follows:

Business use – 50.5¢ per mile (up from 48.5¢ in 2007)
Charitable driving – 14¢ per mile (set by law and unchanged from 2007)
Driving for medical reasons – 19¢ per mile (down from 20¢ in 2007)
Moving expenses – 19¢ per mile (down from 20¢ in 2007)

The IRS did not indicate why the rate for business use increased and the rate for medical use and moving decreased. The rates are based on an annual study of the fixed and variable costs of operating an automobile by an independent contractor.

Employers can reimburse their employee’s business use of their personal cars by the same 50.5¢ per mile in 2008 without the reimbursement being taxable to the employee, if the employer has an “accountable plan”. An accountable plan generally must require the employee to substantiate the business use and, if advance payments are made to the employee, must require any unsubstantiated advances to be repaid within a reasonable period of time.

The standard mileage rate can be used to compute deductible automobile expenses in lieu of computing your actual costs. There are some limitations to the use of the standard mileage rate.

BB recommends - If you have any questions about this issue, contact your BB
representative or call Ted Stacey at 504 831-4949.

This written advice is not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer

Disclaimer: This eBulletin contains general information and cannot substitute for Individual consultation. You should obtain professional advice before making financial business or tax decisions.

eBulletin 2007-8

November 21, 2007

Automobile Credit to Begin Phasing Out

The Internal Revenue Code allows taxpayers a credit for alternative motor vehicles, such as so-called “hybrid” vehicles. The amount of the credit varies by vehicle. Taxpayers may claim the full amount of the credit up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000 qualified vehicle. For the second and third calendar quarters, the taxpayer may claim 50% of the credit. For the fourth and fifth calendar quarters, taxpayers can claim 25% of the credit. No credit is allowed after the fifth quarter.

The sale of Toyota’s 60,000th qualified vehicle occurred in the quarter ended June 30, 2006. This means purchasers of Toyota and Lexus hybrid vehicles are no longer able to claim any credit, effective for vehicles purchased in the quarter beginning October 1, 2007.

The IRS has now announced that American Honda Motor Company, Inc. reached the 60,000 vehicle limit in the quarter ended September 30, 2007. This means that the credit for Hondas will begin phasing out January 1, 2008.

Vehicles purchased before Jan. 1, 2008 qualify for the full credit. For Honda hybrid vehicles bought on or after Jan. 1, 2008, and on or before June 30, 2008, the credit is 50 percent of the otherwise allowable credit amount. Taxpayers buying vehicles on or after July 1, 2008, and on or before Dec. 31, 2008, can only get 25 percent of the credit. Beginning January 1, 2009, purchasers of Hondas will not be able to claim the credit.

Example: Wesley wants to buy a 2007 Honda Accord Hybrid AT. If he purchases it on December 31, 2007, he qualifies for a $1,300 credit. If he buys it on January 10, 2008, he only qualifies for a $650 credit.

BB recommends - The credit is set for each qualifying vehicle by the IRS, based on information provided by the manufacturer. Hybrid vehicles manufactured by companies other than Toyota and Honda will continue to qualify for their full credit. Check with the dealer when you look at new cars. The amount of credit for each qualifying automobile can be found at the IRS website, www.irs.gov, more specifically at http://www.irs.gov/newsroom/article/0,,id=157632,00.html.

BB recommends - If you have any questions about this issue, contact your BB
representative or call Ted Stacey at 504 831-4949.

This written advice is not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer

Disclaimer: This eBulletin contains general information and cannot substitute for Individual consultation. You should obtain professional advice before making financial business or tax decisions.

eBulletin 2007-7

October 19, 2007

New Social Security Numbers Announced

The Social Security Administration announced that benefits paid to recipients will rise 2.3% in 2008. In addition, the maximum amount of wages subject to Social Security withholding (and earned income subject to self-employment tax) will increase. The relevant amounts are as follows:

Maximum earnings subject to Social Security withholding:

Social Security taxes must be withheld from wages until the wages reach the following amounts:

2008 - $102,000
2007 - $97,500

There is no earnings limit for Medicare withholding.

The same limits apply to earned income subject to the self employment tax.

The tax rate of 7.65% (15.30% for self-employed taxpayers) will not change.

Maximum amount of earned income you can receive without losing Social Security Benefits:

Individuals who have not reached full retirement age (defined below) can lose Social Security benefits if their earned income exceeds a defined amount. For individuals under the age of 65 during the entire year, the maximum amounts they can earn without losing benefits are as follows:

2008 - $13,560 per year ($1,130 per month)
2007 - $12,960 per year ($1,080 per month)

A special test applies to taxpayers who reach full retirement age during the year. For these individuals, the maximum amounts they can earn before reaching full retirement age are as follows:

2008 - $36,120 per year ($3,010 per month)
2007 - $34,440 per year ($2,870 per month)

Full retirement age is 65 years, 8 months for those born in 1941, 65 years, 10 months for those born in 1942, and 66 years for those born in 1943 through 1954.

Individuals who have reached full retirement age can earn any amount of income without losing benefits.

Average Benefits:

The Social Security Administration estimates that average monthly Social Security benefits are as follows:

For more information, you can go to the Social Security Administration website at www.ssa.gov.

BB recommends - If you have any questions about this issue, contact your BB
representative or call Ted Stacey at 504 831-4949.

This written advice is not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer

Disclaimer: This eBulletin contains general information and cannot substitute for Individual consultation. You should obtain professional advice before making financial business or tax decisions.

eBulletin 2007-6

August 15, 2007

Changes to Louisiana Gift and Inheritance Taxes

The recent session of the Louisiana legislature made some major changes to the Louisiana gift tax and inheritance tax laws.

Gift Tax

The legislature repealed the Louisiana gift tax effective for gifts made on or after July 1, 2008.

Louisiana allows taxpayers to gift up to $12,000 per year to any donee tax-free. In addition to the annual exclusion, each donor is allowed to gift an additional $30,000 in their lifetime tax-free. Once the lifetime exclusion is used up, gifts in any year that exceed the annual exclusion are taxable. The highest gift tax rate is 3%. A gift tax return must be filed in any year gifts in excess of the annual exclusion are made.

Because the gift tax is repealed only for gifts made on or after July 1, 2008, gifts made before then, including gifts made in the first half of 2008, are still subject to the gift tax rules.

BB recommends - The obvious recommendation here would seem to be to defer making taxable Louisiana gifts until July 1, 2008. However, this is not necessarily the best advice. Discuss your gifting program with your BB representative or call Marcie duQuesnay in our New Orleans office.

Inheritance Tax

Effective for deaths occurring after June 30, 2004, no inheritance tax is due and no inheritance tax return or any other succession related documentation is required to be filed with the Department of Revenue, if, no later than the last day of the ninth month following the death of a decedent, (1) the succession (estate) is opened in court, (2) a declaration of trust is filed in the case of an inter vivos trust, or (3) judgment of possession is rendered.

The legislature has now eliminated even this requirement, beginning with successions of decedents dying after March 31, 2007. Thus, as of January 1, 2008, no inheritance tax return will be due, regardless of when the succession is opened.

Inheritance tax returns will still be required to be filed for successions of decedents dying between July 1, 2004 and March 31, 2007 unless one of the above three requirements is met within the nine-month period.

Until January 1, 2008, affidavits of Small Succession as provided by Code of Civil Procedure Article 3431 et seq. should continue to be filed with the Department of Revenue for deaths occurring between July 1, 2004 and March 31, 2007. An Affidavit of Small Succession is allowed when a person dies intestate, leaving no immovable property and having as heirs only his descendants, ascendants, brothers or sisters (or descendants thereof), or surviving spouse.

BB recommends - While the inheritance tax has been repealed, successions for decedents dying on or before March 31, 2007 should still take appropriate action within the nine-month period to avoid having to pay inheritance tax. For more information, call Marcie duQuesnay in our New Orleans office or e-mail her at marcied@bb-cpa.com.

This written advice is not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer

Disclaimer: This eBulletin contains general information and cannot substitute for Individual consultation. You should obtain professional advice before making financial business or tax decisions.

eBulletin 2007-5

July 31, 2007

The IRS Extends Another Deadline

Section 121 of the Internal Revenue Code allows taxpayers to exclude from taxable income up to $250,000 of their gain on the sale of a principal residence if they have owned and occupied the residence for two out of the last five years prior to the date of the sale. The exclusion is $500,000 for married taxpayers filing a joint return.

This provision can actually help a taxpayer whose house was destroyed by Katrina, because the destruction of a principal residence is considered to be a “sale” for this purpose. For example, if your house was destroyed by Katrina and you sell the shell, the gain created by the sales price plus your insurance and/or LRA reimbursement can be tax-free up to the $250,000/$500,000 maximum.

Up to now, the IRS has indicated that the sale of the shell and land (or just the land if the house was torn down) must occur by August 28, 2007 to qualify for the tax-free treatment. The IRS has now extended that deadline one year. Taxpayers now have until August 28, 2008 to sell the land.

In effect, taxpayers whose residences were destroyed by the storm now are treated the same as other taxpayers whose homes weren’t destroyed.

Taxpayers whose homes were destroyed by Hurricane Rita now have until September 22, 2008.

For more information - Call Ted Stacey in our New Orleans office at (504) 831-4949 or contact your Bourgeois Bennett professional.

This written advice is not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer

Disclaimer: This eBulletin contains general information and cannot substitute for Individual consultation. You should obtain professional advice before making financial business or tax decisions.

eBulletin 2007-4

July 12, 2007

Federal Minimum Wage Increase

Just a reminder that the Federal minimum wage will increase to $5.85 per hour beginning July 24, 2007.

The minimum wage will increase again to $6.55 per hour on July 24, 2008 and to $7.25 per hour on July 24, 2009.

For more information - Call Ted Stacey in our New Orleans office at (504) 831-4949 or contact your Bourgeois Bennett professional.

This written advice is not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer

Disclaimer: This eBulletin contains general information and cannot substitute for Individual consultation. You should obtain professional advice before making financial business or tax decisions.

July 10, 2007

Sales Tax Holiday

The recent legislative session approved a sales tax holiday for the first consecutive Friday and Saturday in August. This year, the holiday will be on August 3 and August 4.

The Louisiana Department of Revenue has now issued information about the sales tax holidays under Revenue Information Bulletin No. 07-017-A. This information follows.

1. What is a “sales tax holiday”?
   A “sales tax holiday” is a temporary period when sales taxes are not collectible or payable on all or a specific class of purchases. Act 244 of the 2007 Regular Session of the Louisiana Legislature has authorized a “sales tax holiday” on the first consecutive Friday and Saturday of each August. The dates of the 2007 holiday are August 3 and August 4.
   
   
2. What can I buy tax-free during the holiday?
   An individual non-business purchaser can make state sales tax-free purchases of virtually all types of tangible personal property during the holiday except vehicles that must be licensed and titled, prepared meals, and to-go foods, provided that the price of any individual item purchased does not exceed $2,500. For items that sell for more than $2,500, the state sales tax must be paid on the amount above the $2,500.
   
   
3. Besides vehicles, meals, and to go-foods, is there anything else that I cannot buy tax-free during the holiday?
   In addition to the specific exclusions in the Act for vehicles and meals, the state sales tax holiday will not apply to purchases of taxable services (hotel occupancy; amusement, recreational, and athletic admissions; repairs to tangible personal property; laundry, cleaning, pressing, and dyeing services; vehicle parking; the furnishing of cold storage space; printing services; and telecommunication services) nor to leases or rentals of tangible personal property.
   
   
4. I am not a resident of Louisiana. Can I make tax-free purchases during the holiday period?
   Yes. However, when the tangible personal property that is purchased without the payment of sales taxes in Louisiana is exported for use in other states, use taxes might be payable on those purchases to the other states where the purchased items will be used.
   
   
5. Does the holiday give me a tax break on local taxes?
   No. Only the state sales tax, currently levied at the rate of 4 percent of the sales price of most items of tangible personal property, is exempted during the holiday.
   
   
6. What must I do in order to receive the exemption on the 4 percent state sales tax?
   In order to receive the tax exemption, the customer must do one of the following:
   • Must purchase and accept delivery of eligible property;
   • Must place property on layaway;
   • Must pay for and acquire possession of property that was previously placed on layaway; or
   • Must place and pay for an order for immediate shipment, even if delivery must be delayed. However, the delay in delivery must not be at the request of the purchaser.
     
     
7. My vendor does not have what I want in his in-store inventory, so he must order the item for me. Can I receive the tax exemption on that item?
   If during the two days of the annual holiday, the customer selects and pays for or fully finances an item that is scheduled, at the time that the order is placed, for immediate delivery to the customer from the vendor’s or the vendor’s supplier’s inventory, the purchase will be eligible for the tax exemption, even if delivery cannot be completed until after the days of the holiday. In such a case, the vendor will be required to record the sale in his accounting records as having been made during the days of the holiday, and report the transaction on state and local sales tax returns that are filed for the August holiday period.
   
   
8. Does my business have the option of whether to participate in the “sales tax holiday”?
   No. Every business that sells in Louisiana during the two days of the holiday must allow the state sales tax exemption on eligible sales of tangible personal property.
   
   
9. How do I claim a deduction on my sales tax return for the tax-free sales that I make during the holiday?
   Retailers should report exempt sales on Line 33 of the Sales Tax Return (R- 1029) and write the words “Sales Tax Holiday” as the explanation.
   
   
10. Will I receive any compensation for the cash register programming changes that I must make to properly record the exempt sales made during the holiday?
    Act 386 of the 1990 Regular Session of the Louisiana Legislature provides that dealers who incur costs to reprogram cash registers, including computer programming, as a result of a change in the state sales and use tax rate or base shall be allowed credits on their sales tax returns of up to $25 for each cash register reprogrammed. Dealers are allowed to claim credit only for reprogramming costs invoiced to them by external providers of services, but not for internal reprogramming services rendered within their businesses by such internal persons as owners, officers, partners, or employees.

More details concerning this credit are available on the Louisiana Department of Revenue’s web site.

For more information - Call Ted Stacey in our New Orleans office at (504) 831-4949 or contact your Bourgeois Bennett professional.

This written advice is not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer

Disclaimer: This eBulletin contains general information and cannot substitute for Individual consultation. You should obtain professional advice before making financial business or tax decisions.

eBulletin 2007-2

June 7, 2007

Small Business and Work Opportunity Tax Act of 2007

After a veto and much negotiation, Congress passed, and the President signed, the U.S. Troop Readiness, Veterans Care, Katrina Recovery, and Iraq Accountability Appropriations Act of 2007. The Act, among other things, increases the federal minimum wage to $5.85 per hour effective July 24, 2007, $6.55 per hour effective July 24, 2008 and $7.25 per hour effective July 24, 2009.

This larger Act also includes tax provisions that have been titled the Small Business and Work Opportunity Tax Act of 2007. Here is a brief summary of some of the tax provisions:

• The work opportunity tax credit has been extended through August 31, 2011. Among other changes, veterans with service-connected disabilities have been added to the list of qualified employees.

In many cases, taxpayers have found that they were unable to benefit from the work opportunity credit because they were subject to the alternative minimum tax (AMT). As a significant benefit, the Act eliminates the AMT limitation to the work opportunity credit (and to the credit for taxes paid with respect to cash tips). This latter provision is applicable to “credits determined ... in taxable years beginning after December 31, 2006 and to carrybacks of such credits”. Depending upon how the term “determined” is defined in guidance, this provision might not apply to credits carried over by area taxpayers who were not able to gain the immediate full benefit of the credits they received from hiring qualified Katrina employees because of the AMT.

• Under section 179 of the Internal Revenue Code, taxpayers can elect to expense a certain amount of the cost of business property that otherwise would be depreciated. This amount has been increased to $125,000 in 2007 and will be indexed for inflation in the following years through 2010. The allowable deduction is phased out as total acquisitions exceed a set amount. This limitation has been increased to $500,000 in 2007 and it, too, will be indexed for inflation through 2010.

Note that a section 179 deduction cannot be used to create a taxable loss, but the excess can be offset against income in future years.

Katrina benefit: Under the Gulf Opportunity Zone Act of 2005, the section 179 deduction was increased for qualifying property used in the Katrina GO Zone by $100,000 and the acquisition limitation was increased by $600,000. For most taxpayers, this provision expires December 31, 2007. However, under the new Act, this benefit is extended for one more year (through December 31, 2008), but only for qualifying property substantially all the use of which is in Calcasieu, Cameron, Orleans, Plaquemines, St. Bernard, St. Tammany, and Washington parishes in Louisiana, and in the Mississippi counties of Hancock, Harrison, Jackson, Pearl River, and Stone.

• Husbands and wives will be able to elect to report a joint venture in which they both materially participate (and of which they are the only owners) directly on their Form 1040 (Schedule C), rather than have to file a partnership return, effective for taxable years beginning after December 31, 2006. (Note that a special rule already applies to certain ventures owned by husbands and wives in community).

• The Act includes some reforms for Subchapter S corporations, including eliminating the gain from sales and exchanges of stocks and securities from the definition of passive income, making it easier for corporations owning qualified Subchapter S subsidiaries to sell interests in those corporations, and allowing electing small business trusts to deduct the interest on indebtedness paid or accrued to acquire the stock of the Subchapter S corporations. Check with your BB professional as to the effective dates for each of these provisions.

• The so-called “kiddie tax” requires certain minor children to pay their tax on unearned income at their parent’s highest marginal tax rate. This kiddie tax has been extended to any child who (i) has not attained age 19 before the close of the taxable year, or (ii) has attained age 19 before the close of the taxable year and is a full-time student under the age of 24. The kiddie tax will not apply to a child 18 years old or older if the child’s earned income equals or exceeds one-half of the his or her support. This provision applies to 2008 and later.

• The Act increases the minimum penalty on bad checks to $25 effective for checks or money orders received after May 25, 2007.
  

• The Act imposes a penalty on any taxpayer filing an erroneous claim for refund or credit (such as an amended return), effective for claims for refund or credit filed after May 25, 2007. The penalty is equal to 20 percent of the disallowed portion of the claim for refund or credit for which there is no reasonable basis for the claimed tax treatment.

BB recommends: This is only a brief summary of the more important changes. If
you believe one or more of these changes may help you, or if you have any
questions, call your BB professional or Ted Stacey or Ken Franz in our New
Orleans office.

For more information - Call Ted Stacey in our New Orleans office at (504) 831-4949 or contact your Bourgeois Bennett professional.

This written advice is not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer

Disclaimer: This eBulletin contains general information and cannot substitute for Individual consultation. You should obtain professional advice before making financial business or tax decisions.

eBulletin 2007-1

January 24, 2007

Annual Tax Statements From Brokerage Firms

Many information returns, such as Forms W-2 and the forms reporting interest and dividend income, rent, and independent contractor income, are required to be delivered to the recipient by January 31. You should be looking for these statements in the mail and collect them together for preparation of your 2006 tax return.

According to the Wall Street Journal, the IRS has granted some brokerage houses additional time to mail their annual tax statements to investors. Therefore, you may not receive your tax statement from your broker until some time in February. Even then, you may still get an amended tax statement later in February or in March.

These delays are attributable to two primary causes. First, legislation passed a few years ago increased the reporting burden on mutual funds and the required information is not always available by January 31.

Second, Form 1099-INT, which reports interest paid to you during the year (and which is part of your annual tax statement if your brokerage account includes interest-paying instruments) includes two new boxes:

Box 8, Tax-exempt interest - Reports the tax-exempt interest paid to you by the account in 2006. This amount goes on line 8b of your form 1040.

Box 9, Specified private activity bond interest - Reports that part of the tax-exempt interest in box 8 that is subject to alternative minimum tax. This amount goes to form 6251.

For more information - Call Ted Stacey in our New Orleans office at (504) 831-4949 or contact your Bourgeois Bennett professional.

This written advice is not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer

Disclaimer: This eBulletin contains general information and cannot substitute for Individual consultation. You should obtain professional advice before making financial business or tax decisions.

Previous eBulletins have been archived by year and are available here:

2006 • 2005