Economic Stimulus Package of 2008

The Economic Stimulus Package of 2008 contains three major items that could have an impact on both your personal and business tax situation..

1. Rebate Checks for Individuals

The check isn't in the mail yet, but it should be beginning in May. Many individuals will be receiving an advance tax credit for 2008 of up to $600 for single filers and $1,200 for joint filers. The maximum credit is available, plus an additional $300 per qualifying child, provided there is a net tax liability shown of at least the credit amount on the 2008 tax return. If not, those individuals will still get at least $300 for single filers, and $600 for joint filers. For high income individuals, this credit disappears at the rate of 5% of adjusted gross income in excess of $75,000 for single filers, $150,000 for joint filers. On the other end of the spectrum, low income individuals will not receive a credit unless they have at least $3,000 of qualifying income (earned income, Social Security, or pensions).

Of course, waiting until 2008 tax returns are filed in 2009 won't do much to stimulate the economy now. So, the IRS will be issuing advances on this credit beginning in May, based on the tax liability and the adjusted gross income amount shown on your 2007 returns currently being filed. If the 2008 return indicates an additional credit is available over what was received in advance, you will be able to claim the additional amount on the 2008 tax return. On the other hand, if the 2008 return indicates you should have gotten less than the advance payment, you will not be required to refund any of the advance.

2. Increased Expensing of Business Assets

For tax years beginning in 2008, the maximum amount of Section 179 expensing of business assets increases to $250,000, provided that total qualifying asset additions are less than $800,000. This compares to the 2007 amounts of $125,000 and $500,000, respectively. This is currently a one-year increase only - 2009 is scheduled to drop back to 2007 levels.

3. Bonus Depreciation is Back

For assets placed in service during calendar year 2008, 50% of the asset cost not already deducted under Section 179 above is available as a first-year bonus depreciation write-off, regardless of the amount of assets placed in service. The rules for this write-off are the same as the bonus depreciation rules that were effective in 2001. The key here is that the item placed in service must be original use property—in other words, used items are not allowed the bonus amount. Assets subject to a binding written contract for purchase as of 1-1-08 don't qualify, nor does real estate (property with a life of greater than 20 years doesn't count). Bonus depreciation is based on the date the asset is put into service, and not based on the tax year end, so fiscal year taxpayers can take advantage of this on current purchases.

Please contact your Schenck tax advisor to discuss these rules in greater detail, and to determine how you can best take advantage of them for yourself and/or your business.