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Changes in IRS Tax Law Effective 2008 Tax Year

We are frequently asked questions about the following issues by our clients during the tax year.  If these items bring other questions to your mind, please let us know or ask us to cover them during our annual tax planning meetings."

Standard Mileage Rates:

• 50.5 cents per mile for business miles driven;
  
• 19 cents per mile driven for medical or moving purposes; and
  
• 14 cents per mile driven in service of charitable organizations.
  

Pension Plan Limitations for 2008

The limitation on elective deferrals to Section 401(k) plans and to the Federal Government’s Thrift Savings Plan, among other plans remains unchanged at $15,500.
The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts remains unchanged at $10,500.

Social Security Benefit Increases

Monthly Social Security and Supplemental Security Income benefits for more that 54 million Americans will increase 2.3 percent in 2008, the Social Security Administration announced on Wednesday October 17, 2007. The 2.3 percent Cost-of-Living Adjustment (COLA) will begin with benefits that nearly 50 million Social Security beneficiaries receive in January 2008.

Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $102,000 from $97,500.

Independent Contractors vs. Employees

Caution: if you incorrectly classify an employee as an independent contractor, you can be held liable for employment taxes for that worker, plus a penalty.  This is going to be a highly auditable issue for 2008 as it has been for 2007, so please ask us questions as you engage workers in your business.

Who is an Independent Contractor?

A general rule is that you, the payer, have the right to control or direct only the result of the work done by an independent contractor, and not the means and methods of accomplishing the results.

Who is an Employee?

A general rules is that anyone who performs services for you is your employee if you can control what will be done and how it will be done.