Top Ten 2008 Income Tax Law Changes

By David Roberts

        Every year for whatever reason whether it be political or an exchange of favors for lobbyists, our Congress adds additional changes to our already complicated tax law. Sometimes these changes are beneficial, sometimes they are not, but this article will briefly examine the changes that have been made for this 2008 Tax Year.

        First, the tax rate on net capital gains and qualified dividends has been reduced! For those tax payers in the lowest two tax brackets who were formally paying 5% in capital gains tax will in the next few years pay 0%. For those interested in the effect on the Alternative Minimum Tax, yes, the 0% rate will apply for both regular tax and the AMT. This is great news and should help encourage those in the lower tax brackets to invest. Of course this begs the question of where are lower income tax bracket tax payers going to get the extra money to invest?

        Perhaps if those who actually HAVE money to invest were given a reduction they might see fit to invest MORE money in hopes for a higher return! These increased investments would then benefit those who don’t have the ability to invest because this investment activity would create jobs. For more information, Google ‘Reaganomics’ or the ‘trickle down economics’.

        Second, the IRA contribution limit for both traditional and Roth IRA’s have increased to $5000. ($6000 for taxpayers over 50 who are playing ‘catch-up’). This is going to encourage more people to save more for retirement. The subject of which kind of IRA is best for you is a little long for this article. The short version is that a traditional IRA lets you invest money pre-tax and reduce current tax liability. The Roth IRA is after tax but upon retirement the individual can withdraw the funds tax free. So it comes down to do you want to be taxed on $5000 now and pull it out when it’s $50000 tax free, (Roth) or would you rather avoid the taxes on the $5000 now and pay them when the amount is at $50000 when you pull it out? (traditional)

        Three, for those who wish to make the decision to rollover their traditional IRAs to Roth IRAs you can now rollover funds from:

a.    A qualified pension, profit-sharing or stock bonus plan (including a 401(k) plan.)

b.   An annuity plan.

c.    A tax shelter annuity plan (section 403(b) plan) or

d.   A deferred compensation plan of a state or local government (section 457 plan)

Although there would be a 10% additional tax on early distributions, there would be the benefit of these funds growing tax free from this point on.

        Four, the phase out of reductions of Personal exemptions and itemized deductions. For those of us who are fortunate enough to have this problem, it means that the government feels that we are making WAY too much money to deserve our standard deductions and itemized deductions, which in the past have been phased out because we are of the fortunate ones and we need to be punished with ever increasing taxes for our achievements. THIS year however, this amount is only 1/3 of the amount that would otherwise apply. That means that even though we will not get the standard $3500 for a personal exemption, that we will at least get a personal exemption of $1167. Isn’t our government generous?

        Five, the Kiddie Tax Rules are now expanded to include any child who is over 18 at the end of the year and whose earned income is not more than half of the child’s support. And, any student who is under age 24 at the end of the year and whose earned income is not more than half of the child’s support. Both groups of children will still be taxed at the parent’s tax rate and this does NOT apply to those who are full time students at a strictly online college or institution. This is a good reason to make sure your new college students are concentrating on studies and NOT on making money! Of course that may not be an option for some.

        Six, a First-time Homebuyer Credit of $7500! First, let’s define a first time homebuyer according to our IRS. A first time homebuyer is someone who hasn’t owned a home for three consecutive years before the purchase date. Second, how does this credit work? Honestly this credit is more like a loan than it is a tax credit. The homebuyer will receive the benefit of a $7500 credit the year of the purchase of the home, which will then be repaid, beginning the second year after the purchase of the home, in increments of 1/15 for 15 years. If the home is sold at anytime during those 15 years the balance must be repaid all at once. This information will be reported on the new IRS Form 5405.

        Seven, the exclusion on the Sale of Main Home. Now those widows and widowers will be able to exclude the full $500000 from the gain of the sale of their home IF: the sale occurs no later than 2 years after the date of their spouses’ death, and if the ownership requirements were met before the date of the death. This is of course, unless there was a sale of a main home by either spouse less than 2 years prior to the death occurring. Situation: Rita Smith and Evan Josephs meet and decide to marry. She sells her home with a gain of over $500000 and within two years she passes away, Evan cannot sell his home with the exclusion because the exclusion has already been taken by his wife. If she had waited to die until the third year, he would be free to claim the full exclusion of $500000.

        Eight, this is actually a good one! Due to the ever increasing gas prices, the Congress has decided to allow 58 cents per mile for business miles driven during the later half of 2008. And, the medical mileage has increased to 27.5 cents per mile for the latter half of 2008. Accurate records is a must for this one, because the IRS is NOT going to believe that you drove 100% of your miles beginning in June!

        Nine, our local heroes, the emergency responders will be receiving rebates or reductions of property and income taxes! They will also be receiving qualified payments of up to $30 per month for providing emergency responder services.

        Ten, the Recovery Rebate Credit. Taxpayers will receive a refundable credit that will be figured in the same manner as the 2007 Economic Stimulus Payment, except that the amounts will be based on tax year 2008 instead of 2007. If there is a difference and the credit is less than the payment received, the difference does not have to be repaid! So this is completely unlike the initial stimulus package passed in 2001 in that they won’t ask us for this one back!

        The next article will explore the remaining changes to the tax law for 2008.

Phishermen Using IRS as Bait to Catch Victims

By David Roberts

        It is that time of year that people’s thoughts begin to turn toward Year-End and taxes. (Well, some people’s thoughts anyway.) It is also that time of year that fraudsters begin to ramp up efforts to snare victims using ‘phishing’ techniques, i.e. using spam emails to lure victims into giving up sensitive information in the hopes for an extra portion of their refund or in exchange for answering a survey getting $80 credited to their credit card or bank account. In this article, we are going to discuss this pervasive problem and how to avoid getting suckered in by these schemes.     

        Below is the text of an actual spam email that has been sent to millions of US Taxpayers, we are going to take it step by step to explain how to tell if you are receiving a genuine message from the IRS or if it’s a Phisherman.

“From: Internal Revenue Service [mail to:security@irs.gov]

Sent: Friday August 8, 2008 10:00AM

Subject: IRS Survey: $80 to your account – Just for your time!

Importance: High

Congratulations!

          Dear Customer,

          You’ve been selected to take part in our quick and easy 8 questions survey. In return, we will credit $80.00 to your account – Just for your time!

Please spare two minutes of your time and take part in our online survey so we can improve our services. Don’t miss this chance to change something.

To continue click on the link below:

http://www.irs.gov/login.asp=survey

Copyright 2007 Internal Revenue Service U.S.A.

          While the reason for asking for information from you may differ, whether it is a survey or a mistake that entitles you to more of a refund than you claimed, the result is the same. Your information and shortly later your bank account are gone. A lot of these phishermen are offshore companies that use a method known as ‘hopping points’ to hide the origin of their operations. A phisherman in Germany will use a ‘hopping point’ in South Korea; these crooks have gotten very creative and will often use several ‘hopping points’ to cover their tracks. But let’s look at this email step by step to see what we are dealing with here.

          One, any email sent to security@irs.gov is going to get rejected as this is not a valid email address, try verifying this yourself as the email address, while likely is a false one can sometimes actually lead to the IRS which will fill their inboxes with tons of requests for information on this ‘survey’.

          Two, when has the government EVER sent you a letter that has said, ‘Congratulations’, either paper or email? Chances are, the answer is never. Let’s face it, the government isn’t in the business of ‘congratulating’ anyone. One person mentioned that he got a draft notice that said, “Congratulations!” but the rest of the letter was all bad news.

          Three, the IRS will never refer to you as a ‘customer’. Taxpayer, yes; Citizen, sometimes, but never ever as a customer. And, even though this is a little facetious when has the IRS ever created anything that is quick and easy? This is the same government institution that sent three extra sheets of paper with each return in 2000 to explain the Paperwork Reduction Act!

          Four, inevitably on these emails there will be a grammar or spelling error. Since these emails are often generated by people whose first language is not English, 99% of the time there will be an error. The English that the IRS uses might not be very clear, but its spelling and grammar are impeccable. ‘8 questions survey’ should be ‘8 question survey’.

          Five, about clicking on these links, remember that these links can be disguised, so while the link may say it’s sending you to the IRS site, in reality, it’s sending you to a cloned site, which in many instances actually looks better than the real thing. NEVER click on these links, NEVER cut and paste these links, if you want to verify the site, manually type in the site into your browser. Cutting and pasting will paste the hidden site, not the intended site into your browser!

          Six, the IRS does not have to copyright itself every year, so there would be no copyright in the corner, it DOES make it look official and that is of course why the phishermen will use this tactic. And finally, number seven, and remember this one, THE IRS WILL NOT INITIATE CONTACT WITH A TAXPAYER VIA EMAIL OR FAX. So why are people caught by this scam? Simply because people are always looking for free money and those that are looking for free money are the ones who keep getting caught up in these types of scams.

          Let’s assume that you have already seen the email and clicked on the link (NEVER DO THIS) in addition to taking you to the wrong site, some links can put a Trojan horse or create a backdoor to your operating system that cannot be detected by Norton, AVG etc, because these backdoors are created by the people who are real familiar with how these programs work. If you have clicked on this link, you are taken either to the survey, (and in many cases, the survey is entirely skipped but regardless of whether it is there or not, this page will ask for your name, Social Security number, the card number you want ‘credited’, the expiration date and the CSV number on the reverse of the card. 

          While the IRS will request your SS #, and the amount of your refund, the IRS will NEVER ASK FOR YOUR CARD NUMBER, BANK ACCOUNT NUMBER, ETC, EVER! Why? Because they already KNOW it! When you opened your account, you had to use your SS number as an identifying number to do so.

          In addition to using SPAM emails, these fraudsters will also use automated faxes. These faxes will often claim that you have won a vacation, or that you need to fill out IRS form W-8 for Foreign People Earning US Income. This is a completely fictitious form, do NOT return this form to the sender!

          Okay let’s say that you have become a victim of this fraud and you have compromised your personal information. What do you do? First, send the email to phishing@irs.gov and contact all the major credit bureaus. If this email claims to be from the IRS you may also call the TIGTA hotline at 1-800-366-4484. Fraud affects everyone, don’t be a victim, learn what you can do to prevent it! And if it has affected you, fight back! There are many services you can use to repair your credit rating after your identity has been stolen.