Client Alert - November, 2007 PAYROLL/1099s: If you have employees for the tax year 2007 (even if it’s only your kids), please bring us the filing information as soon as possible after year end. Penalties can apply as early as January 15th for late filing. The 1099 worksheets will be in the mail to you soon.  NEW JOBS CREDIT:  For new employees hired after May 25, 2007, you may be eligible for a tax credit up to $2,400 per employee. Form 8850 has to be filed within 28 days of hiring. Employer must file form ETA 9061 for each employee. Employee has to be between the ages of 18 and 40. Employee can’t have worked for you before. Employee can’t be related to employer. Employee must work at least 120 hours. Please let us know if you need forms or more information on this new credit. OPPORTUNITIES ENDING 12/31/07: Conservation Contributions: Contribution of qualified real property interest to a qualified organization exclusively for conservation purposes gives a qualified farmer a charitable deduction up to 100% of AGI. Non-farmers are allowed a 50% deduction. Carryover of non-used contributions is 15 years instead of the normal 5 year carryover. This law applies to corporations as well as individuals. The contribution amount is the difference between the appraised value of the property as active farmland versus the appraised per- manent conservation easement val- ue. This opportunity ends December 31, 2007.  Contributions of IRA funds: Taxpayers 70 ½ or older can gift up to $100,000 directly from an IRA to a charity (ends December 31, 2007) without that income being included in gross income. Qualifying distributions count toward the annual required minimum distributions. There are restrictions on this new law, so please check the eligibility rules before making any donations.  Energy Efficient Home Credit: A 10% credit is available for the amount paid for qualified energy efficiency improvements. Ask us about the credit for any home improvements you’ve made in 2007 that helped with the energy efficiency in your home. This credit ends Dec- ember 31, 2007. The lower capital gain rates are due to be phased out in 2010. Take advantage of them while you can.  Rate/Amount Changes for 2007:  For 2007, the Sec. 179 expense deduction (immediate write-off of equipment purchases) has been increased to $125,000. Standard mileage rates for businesses is 48.5 cents per mile for 2007. The domestic production deduc- tion went from 3% in 2006 to 6% for 2007. Law Changes and reminders:  Huge taxpayer penalties have been assessed this year for employers that don’t have a copy of the I-9 forms for ALL of their employees (including owners/corporate offi- cers). It’s very important to have the employee documents (W-2s and I-9s) on file for all current employees! New for 2007, premiums paid or accrued for "quali- fied mortgage insurance" in connection with home acquisition debt are deductible as home mortgage interest. This deduction is currently only available for 2007 payments. Amounts eligible for this deduction will be shown on line 4 of Form 1098. ALL cash contributions must be supported by a receipt from the charity showing the name of the charity, the date of the contribution and the amount given.  You don't need to show these to us, but you do need to keep them in your files. If you purchased a new hybrid motor vehicle, you may be eligible for one of the new tax credits. Independent Contractor or Employee? 2007 has seen some big IRS activity in this area. If an employer treats an individual as an independent contractor and the IRS later determines that the individual is an employee, the employer is subject to a variety of penalties that could be as much as 143% of the original payment. Review those independent contractors and ask yourself a few questions. Does the business have a right to control how the worker performs the required task? Are there written contracts describing the relationship between the employer and the worker? Is there a permanency of the relationship between the worker and the employer? If you need help with the categorization, please let us know. The penalties are scary in this area. Starting in 2008, rollovers from other qualified plans (i.e. 401(k), 403(b), etc.) can be converted directly to Roth IRA accounts.  Due to some new preparer requirements, all of our clients will be required to sign an engagement letter before we can work on your tax return this year. We will have it ready for your signature when you drop off your tax papers. For ease in the preparation of your tax information, we have placed tax data worksheets (proformas) on our website at www.bacopc.com. Click on the "Client Organizers" option on the right side to get to the forms. If you have any problems printing the forms, please let us know. We’d appreciate your use of the forms in compiling your data. It will make it easier for all of us. With all the interest in our NetClient services recently, we just wanted to remind you that this service is still available. NetClient is a client portal out on the web that allows you access to your financial data 24/7. All you need is a computer with web service. Samples of information that could be accessed through this service - tax returns, monthly Simplex printouts, financial statements, payroll data, etc. Clients who don’t like paper and filing have found this service very useful. If you’re interested, please let us know.  The kiddie tax laws are changing in 2008. The kiddie tax applies to the investment income of the child, such as interest, dividends and capital gains, and also the sale of commodities received as a gift by the child. These new and very complex laws will now apply to children through the age of 23. Pre-2007 crop gifts given in 2007 to a child between the ages 18 and 24 to help fund their college years can take advantage of their lower rates before the new law starts in 2008. This has the added advantage of saving the parent social security tax on the crop. Commodity gifting will still save tax dollars in 2008 and beyond if the timing and planning of the gift and subsequent sale are handled correctly. 1) Use prior year crop for the gift. 2) Document the ownership to the child. 3) Leave at least 12 months from harvest to sale of commodity in order to qualify for capital gain treatment. For taxpayers in the 15% tax bracket, the capital gains rate from 2008 thru 2010 is scheduled to be zero. With the use of contributions to IRAs, HSAs, etc., we can hopefully get your income low enough to take advantage of this new rate. If you’re planning any capital gains sales, stop in so we can help with the planning. Of course, these are just the basics. Most of these provisions have special rules, conditions and exceptions. Please call us to see how you can make the most of these tax law changes and planning opportunities.