Dolinka, VanNoord & Company

• Excluding the Gain on the sale of your Home - The Rules are Changing

• Business Incentives from the Economic Stimulus Bill
• New Federal Mileage Rate

ESTATE PLANNING

Most people put off dealing with an estate plan because they do not feel they have enough assets to warrant a trip to their lawyer. Who really wants to face their own mortality? If you have a home, kids, retirement savings, or life insurance you need an estate plan. An estate plan can be as simple as a will, but can also include a durable power of attorney, trust, living will, and/or a living trust. It all depends on what you want to accomplish with your estate plan.

If you pass away without a will you have died “intestate” and your assets will go through probate court before being passed to your heirs as dictated by state law. A simple will can name a guardian for minor children, spell out burial instructions, lets you appoint an executor to make financial decisions for your assets, and includes instructions on the disposition of your assets. A will still goes through probate, but it makes the process easier.

A trust is generally a more time efficient and cost effective way to distribute your assets to your desired beneficiaries, as it does not go through probate. A living trust can hold your assets while you are still living and then distribute them to your heirs or other trusts upon your passing for the benefit of your love ones. A trust can also hold assets for your minor children until they reach the age you would like them to take control of their inheritance otherwise they will receive it on their 18th birthday in Michigan.

Living wills and durable powers of attorney are two other documents to consider as part of your estate plan. Living wills contain written instructions for your health care should you ever become incapacitated. A durable power of attorney gives someone authority to act on your behalf if you cannot and can be limited to certain transactions, such as medical or financial decisions.

Leaving a disorganized estate will only cause more pain and suffering for your loved ones after you are gone. Leaving instructions will ease the burden of deciding who gets the gnome in the back yard and who gets the family dishes.

The process of making your estate plan a reality can be as simple as downloading a statutory will from your state’s website to a complex series of trusts set up to avoid the estate tax. The more complex your asset holdings; the more beneficial trips to your lawyer and accountant will be. Just make sure to set aside some time to make an estate plan a reality.

Provided as a service of Dolinka VanNoord & Company, PLLP.

We have reviewed the information contained herein and believe it to be correct.

However, we cannot accept responsibility for its content or application.

Please consult with us before acting on any tax advice.

First Time Home Buyer Credit

The 2008 Housing and Economic Recovery Act includes a new first time home buyer credit. This credit applies only to first time home purchases after April 8, 2008 and before July 1, 2009, is fully refundable, and reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.

Qualifying Home Purchases

Only the purchase of a main home located in the United States between April 8, 2008 and July 1, 2009 qualifies. Vacation homes and rental property are not eligible. Persons eligible for this credit must not have owned a home in the three years prior to the purchase.

Credit

The credit is 10 percent of the purchase price of the home, with a maximum available credit of $7,500 for either a single taxpayer or a married couple filing jointly. This credit operates like an interest free loan and generally must be paid back over 15 years in equal annual installments, beginning with the second tax year after the year the credit is claimed. If you stop using your home as your main home or sell your home all remaining annual installments become due on the return for the year that this occurs. For a sale of your home the repayment is limited to the amount of gain on the sale, if sold to an unrelated taxpayer.

Income Limits

The credit is phased out based on your modified adjusted gross income. For a married couple filing a joint return, the phase-out range is $150,000 to $170,000. For other taxpayers the phase-out range is $75,000 to $95,000.

Credit Disqualifications

There are certain home purchases that will not qualify you for this credit, even if you are a first time homebuyer and under the income limits. These include:
· You buy your home from a close relative. This includes your spouse, parent, grandparent, child, or grandchild
· You stop using your home as your main home
· You sell your home before the end of the year
· Your home financing comes from tax-exempt mortgage revenue bonds
· You owned another main home at any time during the three years prior to the date of purchase

Please contact us if you believe you may qualify for this credit. We will be happy to analyze your situation.

Provided as a service of Dolinka VanNoord & Company, PLLP.
We have reviewed the information contained herein and believe it to be correct.
However, we cannot accept responsibility for its content or application.

Please consult with us before acting on any tax advice.

EXCLUDING THE GAIN ON THE SALE OF YOUR HOME -
THE RULES ARE CHANGING (If the Home Was a Second Home First)

Currently, and through Dec. 31, 2008, you may exclude gain on the sale of your primary residence up to $250,000 for individuals and up to $500,000 for married couples filing a joint return. You simply had to live in your primary residence for 2 of the previous 5 years. This allowed many individuals with a second home to sell their first home and move into their second home and make it their primary residence for 2 years and then sell it and exclude another $250,000 or $500,000 of gain on the sale.

Starting Jan. 1, 2009, due to changes in the Housing and Economic Recovery Act of 2008, it will not be possible to make the above scenario work. The Act states that any nonqualified use of the home limits the amount of gain excluded on the sale. Nonqualified use is the period of time you do not use the home as your primary residence. Thankfully the Act also states that any nonqualified use before 2009 is not included in the gain exclusion calculation.

For example, what happens if you sell your primary home in 2010, move into your vacation home and live there for two years before selling it in 2012? Under the new rules the period between Jan. 1, 2009 and the date you moved into your vacation home in 2010 is considered nonqualified use because it was not your primary residence during that time frame. Therefore, your gain exclusion is reduced by the percentage of time the home was not your primary residence. Assuming you moved into your vacation home on July 1, 2010 and sold it on Dec. 31, 2012. You will have 1 ½ years of nonqualified use from Jan. 1, 2009 to June 30, 2010 and 2 ½ years of qualified use from July 1, 2010 to Dec. 31, 2012. This means you will need to reduce your gain exclusion by 37.5%.

Comment
Home owners who originally planned to use the gain exclusion on their second home as well as their primary home may want to revisit their plans. Even though the home market is still a bit sluggish, it may be worthwhile to move up your plans to sell your primary home before the end of the year and make the move now to your second home. With the usage before Dec. 31, 2008 being excluded, it will let you count all time after the Act goes into effect as qualified time when you sell your second home. If this is not possible, i.e. the home does not sell, the gain on the second home will only be partially excluded.

If you have any questions, do not hesitate to ask the tax team members (Larry, Bob, Leigh, Melanie, Justin & Chad)

Provided as a service of Dolinka VanNoord & Company, PLLP.

We have reviewed the information contained herein and believe it to be correct. However, we cannot accept responsibility for its content or application.

Please consult with us before acting on any tax advice.

NEW “KIDDIE TAX” RULES

The 2007 Small Business Tax Act extends the reach of the kiddie tax. The kiddie tax imposes an income tax on the net unearned income of the child at the parents’ marginal tax rates, if the rates are higher than the child’s tax rates. For tax year 2007, this would generally be for unearned income over $1,700. Unearned income includes interest from a savings account, bond interest, rents, royalties, capital gains, income earned in custodial accounts, income from trusts, and dividends from stock. If the earned income of a student over age 17 exceeds half of the student’s support, the kiddie tax no longer applies. Earned income includes income derived from active participation in a trade or business, including wages, salary, tips, commissions, and bonuses. Scholarships are not counted in the support test for this purpose.

Changes to the Kiddie Tax

In 2006, the Tax Increase Prevention and Reconciliation Act (TIPRA) extended the reach of the kiddie tax from children under age 14 to children under age 18. The 2007 Small Business Tax Act now raises the age limit to all children under age 19 and students under age 24. These changes are effective beginning January 1, 2008 for calendar year taxpayers.

Commentary

In the past it was typical to plan for tuition expense by setting up investment accounts for children and then selling the investments when the child entered college, thus paying lower taxes on the gains. Now that the 2007 Small Business Tax Act has increased the age limits it may not be feasible for students under age 24 to carry forward with such a plan. The potential gain on a sale will be taxed on their parents’ return, generally at a higher tax rate than the student would have. There are more suitable ways to fund college, including using a Section 529 plan, such as the Michigan Education Savings Program (MESP). This plan allows parents, grandparents, relatives, and friends, at any income level, to open an account and contribute to MESP for a beneficiary. Contributions made to a plan may be deductible from your Michigan income up to a maximum of $10,000 for joint filers and $5,000 for single filers. The contributions grow tax free and withdrawals used for tuition and qualified higher education expenses at eligible colleges are free of both federal and Michigan income tax. Please contact us for more information on this and other plans that may be available to you.

Provided as a service of Dolinka VanNoord & Company, PLLP.

We have reviewed the information contained herein and believe it to be correct.

However, we cannot accept responsibility for its content or application.

Please consult with us before acting on any tax advice.

BUSINESS INCENTIVES FROM THE ECONOMIC STIMULUS BILL:
BONUS DEPRECIATION AND INCREASED SECTION 179 EXPENSE LIMITS

The Economic Stimulus Act of 2008 is best known for the millions of rebate checks received by individuals during late spring and into the summer. However, there is a business incentives component to the law that may prove to be a larger stimulus to the economy. The incentives include doubling the Code Sec. 179 expensing limit for 2008 and 50% first year bonus depreciation for assets purchased and placed in service during 2008.

Increased Code Sec. 179 Expensing
Code Sec. 179 allows businesses to expense assets in the first year of service rather than depreciate them over a number of years. The Act increases the new asset expensing limit from $125,000 in 2007 to $250,000 in 2008. The threshold for reducing the deduction was raised from $500,000 of purchases in 2007 to $800,000 in 2008. This applies to qualifying property purchased and placed in service during 2008 and is not indexed for inflation for future years. Fiscal year filers will be able to benefit from these new higher limits for years beginning in 2008 and will be able to start expensing new assets when their 2008/2009 fiscal year starts.

New Bonus Depreciation
Many of us remember bonus depreciation was used as an economic stimulus after September 11th as well as in the Gulf region after the hurricanes. This new law enacts 50% first year bonus depreciation for assets purchased and placed in service during 2008. The bonus depreciation will allow businesses to expense the first 50% of the asset’s cost and depreciate the remaining cost over its normal lifetime.

To claim the bonus depreciation the property must be:
1. Depreciable over 20 years or less and qualify for MACRS (Modified Accelerated Cost Recovery System) depreciation

2. Water utility property
3. Off-the-shelf computer software
4. Qualified leasehold property

A one year extension of the placed in service date is available for transportation property and certain aircraft. There also cannot be a binding contract to acquire the property in place before January 1, 2008.

When used together these new business incentives can decrease a company’s overall tax bill for 2008. Please contact us on how Code Sec. 179 expensing and bonus depreciation can help your business.

Provided as a service of Dolinka VanNoord & Company, PLLP.

We have reviewed the information contained herein and believe it to be correct.

However, we cannot accept responsibility for its content or application.

Please consult with us before acting on any tax advice.

NEW FEDERAL MILEAGE RATE

Effective July 1, 2008, the IRS has increased the standard mileage rates used by employees, self-employed individuals, and other taxpayers. The rate has been increased to 58.5 cents from 50.5 cents per mile for all business miles driven between July 1 and December 31, 2008. The old rate is in effect for miles driven during the first six months of the year.

Provided as a service of Dolinka VanNoord & Company, PLLP.

We have reviewed the information contained herein and believe it to be correct.

However, we cannot accept responsibility for its content or application.

Please consult with us before acting on any tax advice.