A new 3.8% Medicare tax applies to taxpayers who have modified adjusted gross income in excess of $200,000 (single filers), $250,000 (maried filing jointly) and $125,000 (married filing separately). This tax will cost $38 per $1,000 of investment income above those levels. Strategies to avoid this tax could include restructuring investment portfolios so they include more tax-free interest and/or investments in non-dividend paying stocks.

There's a new 39.6% tax bracket that applies to taxpayers with taxable income above $450,000 (married filing jointly), $425,000 (head of household) and $400,000 (single). Additionally, if your taxable income exceeds those thresholds, your capital gains will be taxed at a new 20% rate. Controlling the timing of receipt of wages and dividends and/or capital gains could enable you to avoid this tax bracket, and, therefore, the higher rates.

Certian taxpayers will be subject to limitations on itemized deductions and the personal exemptions. Single filers with adjusted gross income above $250,000, heads of households above $275,000, married filing jointly above $300,000 and married filing separately above $150,000 will be affected. By controlling the nature and timing of both your income items as well as your itemized deductions, you may be able to keep your adjusted gross income below those levels, thereby preserving the full benefit of your itemized deductions and personal exemptions.

The FICA tax rate for employees is increased from 4.2% to 6.2% on taxable wages up to that new base amount.

The Medicare tax rate for employees continues to be 1.45% on all taxable wages and, additionally, employees having more than $200,000 in taxable Medicare wages will pay an additional 0.9% on wages exceding $200,000.

In addition, you can find a comprehensive overview of the Act via this PDF from CCH

The White House has provided a list of the top seven things to know about the Act.

If you prefer to read the full text of the law yourself, the US Government is available makes that available.

The Economic Stimulus Act of 2008 provides these incentives to businesses, which include a special 50-percent depreciation allowance for 2008 purchases and an increase in the small business expensing limitation for tax years beginning in 2008.

What does this mean to your business?

If you purchase and place into service qualifying property during your 2008 tax year, you are able to depreciate 50% of the original cost of your purchase. Qualifying property includes any property that would traditionally be depreciated over a period of 20 or fewer years, any off the shelf computer software, or any qualified leasehold property. You can extend your ability to place the property into service through 2009 if the recovery period is ten or more years.

Any purchased property that would traditionally be eligible for Code Sec. 179 expensing, can be treated as an expense, thereby allowing a business to deduct up to $250,000 of the purchase price, instead of depreciating the purchase over several years. There are limits to how much you can spend before the deduction is reduced. If a business operates at a loss in 2008, a deduction cannot be made; however the disallowed deduction can be carried forward to a non-loss year.

Bonus Depreciation
If you purchase and place into service qualifying property during your 2008 tax year, you are able to depreciate 50% of the original cost of your purchase. Qualifying property includes any property that would traditionally be depreciated over a period of 20 or fewer years, any off the shelf computer software, or any qualified leasehold property. You can extend your ability to place the property into service through 2009 if the recovery period is ten or more years.

Enhanced Expensing
If you purchase property eligible for Code Sec. 179 expensing, you are able to treat it as an expense and deduct up to $250,000 of the purchase price, instead of depreciating the purchase over several years.
What purchases are eligible under Code Sec. 179? Basically, any tangible personal property is included in section 179. This property must be actively used in the taxpayer’s business, it must be newly purchased, and it must be an item that can be depreciated.

Some examples of qualifying property are:

• Computers
• Gas storage tanks
• Greenhouses
• Machinery and equipment
• Office equipment—copiers, typewriters, fax machines, etc
• Office furniture—desks, chairs, file cabinets, book shelves, etc
• Off-the-shelf computer software
• Oil and gas well and drilling equipment
• Printing presses
• Signs
• Sport Utility Vehicles (SUVs)
• Storage facility (e.g., peanut, hay, potato or tobacco)
• Store counters
• Testing equipment
• Vineyards

Why should a company take advantage of these savings?
Accelerated depreciation methods have always been an effective tool for writing-off assets that potentially, while not at their actual ‘end-of-life,’ could become functionally obsolete to a company. In such cases, those organizations qualifying for this economic stimulus incentive could find far greater tax shield effects over traditional, straight-line depreciation.

The IRS has issued a schedule of when the checks will be directly deposited to your account or when you will receive them via mail. Here are the details:

Economic stimulus payments will be issued according to the last two-digits of the main filer's Social Security number. People who use direct deposit also will be among the first to receive the payments starting April 28. The first cycle of paper checks will be mailed starting May 9 and continuing through May 16.

If you used direct deposit on your 2007 1040, then:

• If your social security number ends with 00 through 20; you'll receive your payment April 28.
• If your social security number ends with 21 through 75; you'll receive your payment May 5.
• If your social security number ends with 76 through 99; you'll receive your payment May 12.

If you did not use direct deposit, then:

• If your social security number ends with 00 through 09; you're payment will be mailed May 16.
• If your social security number ends with 10 through 18; you're payment will be mailed May 23.
• If your social security number ends with 19 through 25; you're payment will be mailed May 30.
• If your social security number ends with 26 through 38; you're payment will be mailed June 6.
• If your social security number ends with 39 through 51; you're payment will be mailed June 13.
• If your social security number ends with 52 through 63; you're payment will be mailed June 20.
• If your social security number ends with 64 through 75; you're payment will be mailed June 27.
• If your social security number ends with 76 through 87; you're payment will be mailed July 4.
• If your social security number ends with 88 through 99; you're payment will be mailed July 11.

People who file a return after April 15 will receive their economic stimulus payment, but probably about two weeks later than the schedule shows. A return must be filed by October 15 in order to receive a stimulus payment this year. See the online calculator for an estimate of the amount you will receive.

Additional Information

What is it? It's an economic stimulus payment that more than 130 million households will receive starting in May. It's not taxable, and it won't reduce your 2007 or 2008 refund or increase the amount you owe when you file your 2008 return.

Are you eligible? The vast majority of people who file a 2007 income tax return qualify, and many who don't regularly file a tax return may qualify as well. You're eligible if you have a valid Social Security Number (SSN), can't be claimed as a dependent on a tax return and have either an income tax liability or "qualifying income" of at least $3,000. Qualifying income includes any combination of earned income and certain benefits from Social Security, Veterans Affairs or Railroad Retirement.

Both people listed on a "married filing jointly" return must have valid SSNs to qualify for the payment — if only one has a valid SSN, neither can receive the payment.

How much will you get? The actual amount depends on the information contained on your tax return. Eligible individuals will receive between $300 and $600. Those who are eligible and file a joint return will receive a total of between $600 and $1,200. Those with children will get an additional $300 for each qualifying child. To qualify, a child must be eligible under the Child Tax Credit and have a valid Social Security number.

The payments phase out at certain income levels, so those with higher incomes may receive a reduced payment or even no payment.

Can you estimate your payment? The IRS has created an "online calculator"http://www.irs.gov/app/espc/ that will allow you to answer a few questions and get a quick estimate of your payment amount.

How will you receive the payment? Be sure to choose direct deposit when you file your tax return, even if you aren't due a regular tax refund on your tax return. That way, the stimulus payment will go right to your bank account. Otherwise, we'll mail you a check.

More facts can be found on the IRS website

Distribution Amounts
The annual benefit limitation under a defined benefit plan - the maximum amount such a plan may pay a participant each year - is $185,000.

Contribution Amounts
For defined contribution plans, such as 401(k)s, 403(b)s and 457s, the maximum contribution is $15,500 and the SIMPLE maximum contribution is $10,500.

Catch-up Contributions
For those over 50 the IRA catch-up contribution limit remains the same at $1,000. For 401(k)s, 403(b)s, 457s, and SEPs it is $5,000 and the SIMPLE catch up is $2,500.

Social Security Wage Base
The inflation-based wage base for determining the maximum amount of earnings subject to the Social Security tax will be $102,000 for 2008. The rate remains the same at 6.2%.

Medicare Tax
The Medicare Tax remains the same at 1.45%. There is no upper limit for the wage base.

Mileage Rates
The business mileage rate will remain at $0.505.

Pennsylvania Changes
Income Tax-PA Income tax rate remains the same at 3.07%.
SUTA - Employee Contributions to the PA Unemployment compensation fund will remain at .06%.

Municipalities
Area municipality tax rates remain the same for 2008.

Emergency Municipal Services Tax (formerly OPT)
EMST is changing its name to Local Services Tax.The rate remains the same. The tax now becomes a weekly payroll deduction and is payable at the end of each quarter.
* Millcreek - $10.00
* Lawrence Park - $52.00
* Harborcreek - $35.00
* Summit - $10.00
* City of Erie - $52.00

For a printable version, click here

You may wonder what the real purpose of the random audit program is and how returns are selected for audits other than the type described in the article. The process is enlightening.

When you file your tax return, it is “scored” by the IRS; the amounts are compared with norms for people in your particular line of work and in your income bracket. If your score exceeds a predetermined number — determined by a top secret formula — you will be selected for audit. If parts of your return exceed the norm, for example, your charitable contributions are $10,000 when the norm for your income bracket is $500, you may also be selected for audit.

We are sure you have figured it out by now. Where does the IRS get its “norms” in order to score the returns received? It used to be from the TCMP program (taxpayer compliance measurement program). These audits were brutal; the taxpayer had to prove his name, address, social security number; produce birth certificates for the children, and marriage license, if married, as well as document every item on the return.

The new program promises to be a bit less brutal as the previous one; however, its purpose remains the same: to gather data needed to formulate the norms. The best advice we can provide to you if you are selected for this type of audit is to pick up the phone and call us. Handling the audit yourself will take a considerable amount of your time, cause you undue stress, and may result in an unexpected outcome, i.e., you owe more tax. Our fees for the service should eliminate the undesirable activities for you.

In any case, enjoy the “article”: http://online.wsj.com/article/SB118169532238233324.html and feel free to call or “email”:mailto:mrenkes@k2scpa.com us with your comments or questions.

Guelcher, who was honored at a reception at the Kahkwa Club on May 3rd, is a past president of PICPA's Erie Chapter and widely considered a leader in corporate and community-service circles in the Erie area. In addition to the award recognition, a donation of $1,000 will be made in his name to the PICPA Scholarship Fund.

Sterrett was a PICPA founder and, in 1904, the organization's first president. Sterrett saw accounting as “pre-eminently the profession of business advice” and the accountant as a person who “is thoroughly conversant with the principles” underlying a successful company and who “has accumulated a large fund of information in…business policy.”

Honorees of the award, which bears his name, are individuals who have made significant contributions to PICPA and the CPA profession.

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Founded in 1985, K2S, PC, certified public accountants and advisors, serves a variety of clients ranging from individuals and small-large businesses to school districts, nonprofit organizations, and city and county governments. The services the firm provides include, but are not limited to, individual and corporate tax return preparation and planning, personal and business financial planning, audits and reviews, estate planning, business consulting, payroll processing, and litigation support.

The group aims to empower, engage and connect young professionals, civic and corporate leaders and community service agencies as part of a collaborative effort to fuel the reinvention of the Erie region as a progressive, creative and stable economic force. The Generation-E Leadership Award serves to recognize leaders, ages 21 to 39, who dedicate their energy, talent and time to improving the Erie region.

Leslie with her Generation-E Award

Guelcher was nominated for the award by Marilyn Renkes, also of K2S, who has worked with Guelcher for the past 14 years. Renkes says one reason she nominated Leslie was because “She spends extra hours cultivating [her] network to help our firm continue to grow. This dedication is a direct result of the trust we have in her and she has in us. Our firm would not be the same without her as a team member. She is a self-starter who is a pleasure to work with.”

Guelcher and other award winners were presented with a specially designed sculpture crafted by local artist David Seitzinger during the ceremony attended by community leaders, yep! members and supporters.

Young Erie Professionals supports young talent in the local work force by providing members opportunities for networking, community and civic engagement, and personal and professional development, ultimately attracting and retaining young talent to the Erie region.

K2S, PC is a certified public accounting and advisory firm in Erie, PA. The firm serves a variety of clients ranging from individuals and small-large businesses to nonprofit organizations, and city and county governments. The services the firm provides include, but are not limited to, individual and corporate tax return preparation and planning, personal and business financial planning, audits and reviews, estate planning, business consulting, payroll processing, and litigation support.

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