Individual cash rebate provisions in the Economic Stimulus Act of 2008 By now, you’ve probably
heard about the recently-passed economic stimulus package (the Economic
Stimulus Act of 2008), the centerpiece of which is the government’s issuance of
rebate checks to most Americans. In
brief, the measure will bring tax rebates of $600 for individuals and $1,200
for couples to most taxpayers and $300 checks to low-income people, including
disabled veterans and the elderly. Here
are the key details of the rebate provisions in the stimulus package. Amount
of rebate. Eligible individuals will receive a rebate
for 2008 equal to the greater of: (1.)
The taxpayer’s
net income tax liability, up to a maximum of $600 ($1,200 for a joint return); (2.)
$300
($600 for a joint return) if either (a) the taxpayer’s qualifying income is at
least $3,000; or (b) his net income tax liability is at least $1 and gross
income is greater than the sum of the applicable basic standard deduction
amount and one personal exemption (two personal exemptions for a joint
return). Qualifying income is earned
income generally, social security benefits, and veterans’ disability payments
(including payments to survivors of disabled veterans). There is an additional $300
credit for each qualifying child for whom the child tax credit can be
claimed. This is generally a dependent
child who is under age 17 at the end of the year. The amount of the rebate
credit (both the basic and qualifying child amounts) will phase out at a rate
of 5% of adjusted gross income (AGI) above $75,000 ($150,000 for joint returns). For joint filers with no children who would
otherwise get the maximum $1,200 basic credit, the credit will be entirely lost
at AGI of $174,000. A single filer with
no children who would otherwise get the maximum $600 basic credit will lose the
entire credit at AGI of $87,000. The amount of the rebate is
not includible in gross income and does not otherwise reduce the amount of
withholding. The rebates will be subject
to offsets for items like past-due child support and debts owed to the federal
government. Eligible individuals. An eligible individual is any individual
other than a nonresident alien, a dependent, or an estate or trust. Residents of the U.S. possessions will also
receive the benefit. However, in an
effort to bar illegal immigrants from receiving rebates, the rebate will not be
available if an individual’s tax return does not include social security
numbers of the taxpayer, spouse, and any qualifying children. Taxpayer
identification numbers (ITINSs) that the Internal Revenue Service issues to
aliens who are ineligible for social security numbers are not valid for this
purpose. Delivery
of rebate checks. Most taxpayers will receive the credit in the
form of check issued by the Treasury.
The amount of that check will be computed on the basis of tax returns
filed for 2007 (instead of 2008). Treasury will make every
effort to issue payments as rapidly as possible to taxpayers who filed their
2007 tax returns on time. Taxpayers who
file late or on extension will receive their payments later. No rebate checks will be issued after Dec.
31, 2008. When taxpayers file their
2008 returns early in 2009, they will reconcile the amount of the credit with
the rebate they received in the following manner. They will complete a worksheet calculating
the amount of the credit based on their 2008 tax return. They will then subtract from the credit the
amount of the rebate they received. For many taxpayers, these
two amounts will be the same. However,
if the result is a positive number (because, for example, the taxpayer paid no
tax in 2007 but is paying tax in 2008), the taxpayer will be able to claim that
amount as a credit against 2008 tax liability.
If the result is negative (because, for example, the
taxpayer paid tax in 2007 but owes no tax for 2008), the taxpayer will not be
required to repay the rebate amount to the Treasury. |
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Business
incentives in the Economic Stimulus Act of 2008 As you probably know,
Congress recently passed an economic stimulus package (the Economic Stimulus
Act of 2008) which is intended to jump-start our economy, in part through tax
incentives aimed at encouraging businesses to increase their investments in new
equipment by the end of 2008. Under the Act, small businesses will be able to
write off up to $250,000 of qualifying expenses in 2008. In addition, businesses will be able to
deduct an additional 50% of the cost of certain investments in 2008. Here are the details. Boosted
section 179 expensing. Under pre-Act law, taxpayers can expense
(i.e., deduct currently, as opposed to taking depreciation deductions over a
period of years) up to $128,000 for 2008.
This annual expensing limit is reduced (but not below zero) by the
amount by which the cost of qualifying property placed in service during 2008
exceeds $510,000. The expensing rules
are eased for qualifying empowerment zone property, renewal property, and GO
Zone property. The amount of the
expensing deduction is limited to the amount of taxable income from any of the
taxpayer’s active trades or businesses. Under the Act, for tax years
beginning in 2008, the $128,000 expensing limit is increased to $250,000, and
the overall investment limit is increased from $510,000 to $800,000. As a result of this
incentive, most small businesses, and even some moderate-sized businesses with
moderate capital equipment need, will be able to obtain a full deduction for
the cost of business machinery and equipment purchased in 2008, thereby
reducing their effective cost for those assets.
What’s more, there is no alternative minimum tax (AMT) adjustment with
respect to property expensed under (Code Sec. 179). Bonus depreciation makes a
comeback. Bonus first year depreciation was first
allowed following the terrorist attacks of 2001 but generally isn’t available
for property acquired after 2004. (There
are some exceptions, such as for qualified GO Zone property generally placed in
service before 2008.) The Act provides for bonus
(accelerated) depreciation by allowing a bonus first-year depreciation
deduction of 50% of the adjusted basis of qualified property placed in service
after Dec. 31, 2007, and, generally, before Jan. 1, 2009. The basis of the property and the
depreciation allowances in the year the property is place in service and later
years are appropriately adjusted to reflect the additional first-year
depreciation deduction. The amount of
the additional first-year depreciation deduction is not affected by a short
taxable year. The taxpayer may elect out
of additional first-year depreciation for any class of property for any taxable
year. The interaction of the
additional first-year depreciation allowance with the otherwise applicable
depreciation allowance may be illustrated as follows. Assume that in 2008 a taxpayer purchase new
depreciable property and places it in service.
The property’s cost is $1,000 and it is 5-year property subject to the
half-year convention. The amount of
additional first-year depreciation allowed under the provision is $500. The remaining $500 of the cost of the
property is deductible under the rules applicable is $500. The remaining $500 of the cost of the
property is deductible under the rules applicable to 5-year property. Thus, 20 percent, or $100, is also allowed as
a depreciation deduction in 2008.
Accordingly, the total depreciation deduction with respect to the
property for 2008 is $600. The remaining
$400 cost of the property is recovered under otherwise applicable rules for
computing depreciation. Bonus depreciation is
allowed for AMT purposes as well as for regular tax purposes. Additionally, bonus depreciation is permitted
only for: (1) property to which MACRS applies that has an applicable recover
period of 20 years or less, (2) water utility property, (3) non-custom-made
computer software, and (4) qualified leasehold improvement property. Original use of the property must begin with
the taxpayer after Dec. 31, 2007.
Additionally, the placed-in-service cutoff date is extended for an
additional year (i.e., before Jan. 1, 2010) for certain property with a
recovery period of ten years or longer and certain transportation and aircraft
property. The otherwise applicable “luxury
auto” cap on first-year depreciation is increased by $8,000 for vehicles that
qualify. |