Listed below are some commonly encountered items that usually won’t be allowed as a business expense deduction. In most cases, a deduction is denied for these items either because they are nondeductible personal expenditures, or because Congress specifically made them nondeductible.

Where noted, some of these items may qualify for other tax benefits (such as tax credits or recovery through depreciation).

• bar or professional examination fees
• capital expenditures (not fully deductible in the year placed in service, but yearly deductions are allowed to recover the cost of the item over a specified time period)
• charitable contributions or gifts by a business that’s not a C corporation (sole proprietors may deduct contributions on their individual tax returns, rather than on Schedule C).
• clothing, unless it’s protective equipment, or a uniform that would not be worn during non-working hours
• country club, social club, or athletic club dues
• commuting expenses
• estate tax (even if largely due to the ownership of a business interest)
• expenses, including interest, paid to generate tax-exempt income
• federal income tax
• fines and penalties incurred for violations of law, such as child labor violations, federal income tax penalties, traffic tickets, and penalties for overweight or over-length trucks.
• gift tax; inheritance tax
• gifts to employees that are valued at more than $25
• any portion of a gift to a business contact that is valued at more than $25
• hobby losses
• inheritance tax
• interest on indebtedness incurred by a business taxpayer to purchase life insurance coverage in excess of $50,000 on the life of any its officers, employees, or other person having a financial interest in the taxpayer’s trade or business
• interest on indebtedness incurred to purchase single premium life insurance contracts, or any life insurance contract under a plan of financing the purchase by withdrawing some or all of the yearly build-up in policy cash values
• job hunting expenses (for a new trade or business)
• life insurance premiums, if the business, or the business owner, is a direct or indirect beneficiary.
• lobbying expenses (appearances before legislative bodies and expenses to influence voters)
• partnership organizational expenses, unless amortization election made
• personal, living, or family expenses; however, certain interest, taxes, bad debts, medical expenses, theft or casualty losses, or charitable contributions may be deductible in whole or in part as an itemized deduction on your individual tax return
• political contributions, including tickets to political dinners
• tax penalty payments
• transfer taxes on business property

To help you decide whether a particular expense is likely to be deductible, we’ve provided a list of the most common business deductions.

List of common deductible expenses:

• advertising
• bad debts from sales or services (for those using accrual accounting)
• bank fees on business accounts
• car and truck expenses
• commissions and fees
• cost of goods sold
• deprecitation
• dues for trade associations and other not-for-profit, business-related organizations
• employee benefits
• gifts to customers, suppliers, etc.
• insurance (casualty and liability)
• interest
• legal and professional services
• meals and entertainment
• office expenses
• pension and profit-sharing plans
• rent or lease expense
• repairs and maintenance
• services performed by independent contractors
• supplies and materials (not included in cost of goods sold)
• travel expenses
• utilities
• wages of employees

If you don’t see an item you’re interested in on this list, check our list of common nondeductible expenses as well.

Owning a small business is not just another job. It’s a totally different lifestyle. You have to ask yourself whether you’re ready for a complete commitment to the success of your business. Just as importantly, you have to ask your partner, if you’re in a relationship, whether he or she is completely committed.

As a small business owner, you’re going to have less time for your personal life and you’ll probably be using much of what you own as collateral to raise money for the business. If you are willing to make those sacrifices, then let’s move on to some of the advantages and disadvantages of owning your own business.

Pros:

• You have the chance to make a lot more money than you can make working for someone else.
• You’ll be your own boss and make the decisions that are crucial to your business’ success or failure.
• You may be the boss of other people.
• You’ll have job security — no one can fire you.
• You’ll have the chance to put your ideas into practice.
• You may participate in every aspect of running a business.
• You’ll learn more about every aspect of a business and gain experience in a variety of disciplines.
• You’ll have the chance to work directly with your customers.
• You’ll be able to benefit the local economy, such as by hiring other people to work for you.
• You’ll have the personal satisfaction of creating and running a successful business.
• You’ll be able to work in a field or area that you really enjoy.
• You’ll have the chance to build real retirement value (for example, by selling the business when you retire).
• You’ll have the chance to put down roots in a community and to provide a sense of belonging and stability for your family.

Cons:

• You may have to take a large financial risk.
• You will probably have to work long hours and may have fewer opportunities to take vacations.
• You may end up spending a lot of your time attending to the details of running a business and less time on those things you really enjoy.
• You may find that your income is not steady and that there are times when you don’t have much income coming in at all.
• You may have to undertake tasks you find unpleasant, such as firing someone or refusing to hire a friend or relative.
• You may have to learn many new disciplines, such as filing and bookkeeping, inventory control, production planning, advertising and promotion, market research, and general management.

Special pros and cons of the home-based business:

• Your startup costs will be lower.
• Your operating costs will be lower than they would if you were renting space and paying utilities.
• Your commute will be shorter.
• If your location is unimportant to your business, you can theoretically live anywhere and still operate your business.
• You may be more flexible in your schedule if your business can be conducted at your convenience or outside “normal” weekday business hours.
• On the other hand, you’re much more vulnerable to interruptions from family members, neighbors, and door-to-door salespeople.
• You may have trouble attracting qualified employees.
• You may be less accessible to suppliers.
• You may have an image problem, although with the growing popularity of home businesses, that’s less common.
• You may run out of space at home if your business grows.

What are some other Pros and Cons you can think of? Feel free to leave comments.

Amortizing Your Startup Expenses

If you incur startup expenses, the IRS requires you to amortize and deduct the expenses over a period of at least 60 months, provided that you subsequently enter the trade or business to which the expenses relate. Expenses incurred after the business begins operation, however, are often deductible in the first year. Thus, it’s often a good idea to postpone some expenses until after your first customer arrives.

Which expenses must be amortized? The amortization only applies to expenses incurred after you decide to establish a particular business and before the business actually begins operation. It applies to expenses such as advertising; salaries and wages paid to employees who are being trained; travel expenses incurred in lining up prospective distributors, suppliers, or customers; and salaries and fees paid or incurred for executives, consultants, or similar professional services.

It does not, however, apply to expenses that would not be deductible if incurred after you start the business.

Please keep in mind there are additional rules that allow up to $5,000 to be deducted in the first year. For example, Company ABC was had start up expenses of $25,000. On the first years tax return the company is allowed to deduct up to $5,000 and $338.98 each additional year.

Importance of Good Records

Unless your business is accounting or bookkeeping, keeping financial records is probably not what you do best. Most likely, you’d rather spend your time selling your product or service. However, if you are going to run a successful business, accurate and timely financial information is a must. Here are some of the reasons why you need a good financial recordkeeping system:

• Monitoring the success or failure of your business. It’s hard to know how your business is doing without a clear financial picture. Am I making money? Are sales increasing? Are expenditures increasing faster than sales? Which expenses are too high based on my level of sales? Do some expenditures appear to be “out of control?”
• Providing the information you need to make decisions. Evaluating the financial consequences should be a part of every business decision you make. Without accurate records and financial information, it may be hard for you to know the financial impact of a given course of action. Will it pay to hire another salesperson? How much will another production employee cost? Is this particular product line profitable?
• Obtaining bank financing. A banker will usually want to see financial statements; a balance sheet. income statement, and cash flow budget for the most current and prior years, as well as your projected statements showing the impact of the requested loan. A banker may even want to see some of your bookkeeping procedures and documents to verify whether you run your business in a sound, professional manner.
• Obtaining other sources of capital. If your business has reached the point where you need to take in a partner, any prospective partner will want to become intimately familiar with your financial picture. If you need capital and are thinking of taking in an outside investor, you will need to produce a lot of financial information. Even your suppliers and other creditors may ask to see certain financial records. Such information may be produced by your outside accountant, but it is based on your day-to-day recordkeeping.
• Budgeting. All businesses should use a budget for planning purposes. A budget will help keep your business on track by forecasting your cash needs and helping you control expenditures. In addition, if you are seeking bank financing or other sources of capital, a banker or prospective investor will probably want to see your budget as evidence that your business is well planned and stable. You must have solid financial information to prepare a meaningful budget.
• Preparing your income tax return. Whether your business is a sole proprietorsship, partnership, or corporation, you must file an income tax return and pay income taxes. With good records, preparing an accurate tax return will be easier and you’re more likely to be able to do it on time. Poor records may result in your underpaying or overpaying your taxes and/or filing late (and paying penalties). If your accountant prepares your income tax return, poor records will almost certainly result in your paying higher accounting fees. If your business is a partnership, not only will you have to prepare a partnership tax return, but partnership return amounts will pass directly to the tax return of each partner. So your recordkeeping will directly affect the tax return of each partner.
• Complying with federal and state payroll tax rules. If you have employees, you are aware of the myriad rules and regulations relating to payroll taxes. Payroll tax deposits must be made according to strict deadlines. Late payment of payroll taxes results in severe, and unnecessary, penalties. Also, you must file a payroll tax return every quarter, which you must reconcile with the payroll deposits made during the quarter. Then at the end of the year, you are required to give your employees and the government W-2 forms, which must agree with your quarterly payroll returns. Sound bookkeeping practices will make compliance with all these payroll rules easy. Poor records will make it impossible.
• Submitting sales taxes. If you collect sales tax from your customers, good records will make it easy for you to compute the tax due and prepare the required reports.
• Distributing profits. If your business is a partnership, you will need good records to determine the correct amount of profits to distribute to each partner. If you are operating as a corporation, you must determine the company profits that you will be paying out as dividends to the shareholders.

Outsourcing can be one of the best decisions a business can make. Working with a third party virtual bookkeeping company has been a common thing even for large companies. Any company, whether small or large scale, has to manage accounting books in order to monitor the expenses, revenue, profits, taxes, sales figures and other financial aspects of a company.

Many small companies believe that it is necessary to handle bookkeeping all by them selves in order to cut costs. However, the downside of managing the accounting books yourself is that it will reduce your potentials of being able to focus on the development of your business. In fact, in the long run, you will be spending more. The time spent for analyzing debits and credits can be spent on other more important things. Allowing a professional to handle the bookkeeping task for you will save you time, effort and money. Virtual bookkeeping professionals are equipped with the skills to do the work faster and more efficiently.

The most common reason why companies outsource bookkeepers is to cut costs. Most companies look for a bookkeeping company that can deliver to them the kind of work that they expect at a reasonable value. Virtual bookkeepers are well-versed on business and accounting concepts. Since the company no longer has to hire an in-house bookkeeper, it means less training and hiring costs for the company. It also makes a company save on office space and equipments. Also, since the company will not be responsible for the medical benefits and other additional needs of the virtual bookkeeper, more savings are incurred.

Studies have shown that a company can actually save up to 50% from hiring a virtual bookkeeper than hiring an in-house bookkeeper. This gives a company more money to invest on other things for the growth of their business.

A telecommuting bookkeeping firm delivers a weekly or daily (according to your preference) reports of your company. When interpreted, these figures can point out to how the business is doing and the required steps to keep the business on track. These financial statements can provide essential information regarding the company’s liabilities, assets and profitability at a given period of time.

A bookkeeper who works for a good telecommuting bookkeeping company will be able to identify the competition and trends faced by a certain product in the market. A professional virtual bookkeeper can give the best advices on financial structures and how to lessen annual tax obligations and other expenses. Also, he/she should be able to identify any changes in customer preferences and behaviors to be able to determine timely and effective marketing strategies that will boost revenue and sales.

Every business should be able to preserve precise financial records to maintain transparency in all business dealings. It is mandatory for a company to comply with several government policies such as sales tax and income tax. Thus, instead of doing the bookkeeping task all by yourself, it would be wiser to pass on the burden to a competent bookkeeper.

Here are some suggestions to help you file a return that won’t raise any audit eyebrows at the IRS.

There is no surefire way to audit-proof your tax return. Nevertheless, there are numerous steps you can take to reduce your audit risk:

• Prepare your tax return by computer. A neat, computer-prepared return looks more official to the IRS classifiers and fits the IRS bias favoring computer processing. Most professional tax preparers now use computers. There are some good PC and Macintosh programs, such as Intuit’s TurboTax and MacInTax, that you can use to prepare your own return. You can prepare your return online by using TurboTax for the Web atwww.turbotax.com.
  If for some reason it isn’t possible for you to use a computer, be certain to print carefully. A messy return — cross-outs, sloppy handwriting, smudges — almost screams “audit me!” It tells the IRS that you are careless and disorganized.

• Don’t use round numbers for deductions — for example, $1,000 or $12,000 instead of $978 or $12,127. It’s an indication that you are estimating things rather than keeping good records.

• If you claim large deductions for unusual items, such as an earthquake, flood, or fire loss, attach documentary proof to the back of your tax return. Copies of repair receipts, canceled checks, insurance reports, and pictures are advisable. This won’t stop the IRS computer from flagging your return, but the documents should catch the attention of the IRS classifier who next screens computer-picked returns for audit potential. If she thinks your documentation looks reasonable, you won’t get audited.

• Avoid filing an income tax return with Schedule C, Profit or Loss for Business, that reports a net loss from a small business venture. IRS auditors go after these returns like bees toward honey.

• Report side-job income as other income on line 22 of your tax return. Try this only if the income is relatively small, and you are not claiming any business deductions against it. Technically, side-job income is usually reported on Schedule C, Profit or Loss from Business. But filing a Schedule C undoubtedly increases your audit chances.

• Don’t use electronic filing or the IRS preprinted address label on your tax return. These enable the IRS to get your return into the processing cycle, including the audit cycle, more quickly than otherwise would happen. Anything that slows down the IRS machine can’t be bad. On the flip side, however, using electronic filing or the label usually means that any refund will come faster. If you expect a refund but fear an audit, you’ll have to weigh the pros and cons.

• Live in a low audit area. Your audit chances are radically different depending on where you live. For example, Nevada taxpayers are audited four times more than people in Wisconsin. While moving your official address to reduce your chance of audit is extreme, it might make sense if you travel most of the time or have addresses in several areas. If you have flexibility in choosing your tax reporting address, choose the one with the lower audit rate. If you’re really interested in this, ask your tax pro or visit the IRS local office information reading room.

Very often I get calls from individuals that haven’t filed a tax return in years. Believe it or not, in 2008, I had a client who had never filed a tax return! The first question I am usually asked is “Will I go to jail?” Except in very rare cases, no. What the IRS wants is for you to file the delinquent returns. It’s possible that the IRS has already filed returns for you. The IRS has the authority to file a Substitute for Return (SFR) when you don’t file a return on your own. An SFR is usually not a good thing since it is calculated at Single or Married Filing Separate rates even though you may be qualified to file Married Joint or Head of Household. However, since the IRS has no return, they choose the highest tax rate, not the one you would choose for yourself. The IRS also doesn’t give you dependents you would ordinarily claim. If you have four children, it doesn’t matter. Because the IRS files for you, you only get your own personal exemption. You also don’t get the benefit of any itemized deductions such as mortgage interest, state or property taxes you paid, charitable contribution or health care expenses. Why? Because the IRS basically takes your income, taxes it at the highest rate, deducts any Federal tax you paid and that’s that. And it can get worse. If you have 1099 (self-employed) income, you don’t get any business expenses.

If the IRS has already filed an SFR, that isn’t the end. While the law doesn’t force the IRS to accept a return you file after an SFR has been done, I have never seen a case where the IRS hasn’t accepted the return. Once the IRS accepts the return, the tax is reduced to what is shown, but of course, penalties and interest still apply. However, because the tax is reduced (often by a huge amount) the penalties and interest are reduced as well.

What about if the IRS hasn’t filed a return for you? The same basic rules apply. Simply file a return just like any other one. If you don’t have the information to file (W-2s, 1099s etc.), in most cases we can get the documents from the IRS. It takes up to 45 days, but the IRS usually has wage and withholding information going back at least seven or eight years. For some of you, no records are available because no 1099s or W-2s were ever issued. This is often true for sole proprietors. In that case, hopefully you have records to show your income and expenses. We’ll also use bank statements if you have those available. Assuming that all of your income was deposited into your bank account, that is a good way to track your income, too. If you can’t produce those records, all is not lost. I recommend that my clients “back into” their net income by estimating what it would have taken for you to meet your monthly expenses. For example, let’s say that you have no records for 2005, but you know that your rent was $1,000 per month, you had a car payment of $200, insurance was $50, food and clothing averaged $300 per month, etc. We’ll add up those monthly figures and multiply by 12. It isn’t the greatest way to file a return, but it works in a pinch. If you are due refunds, filing the returns will close your case. Under current law, refunds more than three years old are lost nor can they be applied to other tax due. If you owe taxes, penalties and interest will be tacked on. The failure to file penalty is a maximum of 25% of the tax due on each return. It is not unusual to see the penalties and interest exceed the tax due on returns more than 3 years old. In fact, if the taxes go back 10 years, the total may be 3 or 4 times the tax due. Yikes!

For more information on your payment options from the IRS, visit the payment agreement and Offer in Compromise pages of the IRS. You may also be wondering how many years back you should file. If you assume you should file ALL delinquent returns no matter how many years you haven’t filed, you may be incorrect. In fact, the IRS often doesn’t require that all delinquent returns be filed. For that, we look at Internal Revenue Service Policy Statement P-5-133 which addresses delinquent returns. The statement states that “Taxpayers failing to file tax returns due will be requested to prepare and file all such returns. Where it is determined that required returns have not been filed, to the extent to which compliance for prior years will be enforced will be determined by reference to factors ensuring evenhanded administration of staffing and other Service resources.” Also included is the statement that, “Normally, application of enforcement criteria will result in enforcement of delinquency procedures for not more than 6 years.” However, there may be exceptions based on the level of non-compliance, when additional years are required for resolution. In addition, if you contemplate filing an Offer in Compromise, you should be aware that ALL tax returns must be filed in order to be eligible for an Offer. If all returns are not filed (unless a return was not legally required to be filed) you cannot file an Offer.

1. Cost. A sole proprietorship or general partnership can be set up very inexpensively. A limited partnership and a limited liability company are more expensive to set up. Setting up a corporation can be a very expensive undertaking.

2. Ease. A sole proprietorship is easy to set up; sometimes all it takes is opening up a business checking account. Similarly, a general partnership is easy to set up, although a partnership agreement is something that the partners should create prior to beginning operations. A limited partnership, limited liability company, and corporation involve more work. Since all three entities must be recognized by the state, it is important to adhere strictly to the state requirements or run the risk of losing the advantages that the particular business entity provides.

3. Termination. Some business entities automatically terminate upon such events as death, the withdrawal of a partner, or even divorce. In addition, some businesses are allowed to exist only for a state-mandated period of time.

4. Public Information. How much information do you want the public to know about your business and finances? A corporation is required to provide much more information to the state, which is then available to the public, than a limited liability company or a limited partnership. Sole proprietorships and general partnerships offer the individuals involved a great deal of privacy.

5. Risk. If the business involves a great deal of risk a sole proprietorship or general partnership may be a bad idea because the owner and general partners are personally liable for the business debts and obligations.

6. Operation. The form of the business entity may dictate how it is operated. If you want total control, a sole proprietorship provides the businessperson the greatest degree of control (and the greatest degree of potential risk).

7. Capitalization. An undercapitalized business may result in a loss of protection provided by the business entity. In addition, some business forms make it easier to raise capital when it is needed.

8. Selling. A sole proprietorship is easy to sell; usually you sell the assets of the business, and your business ceases to exist. Selling a partnership interest or a member’s interest in a limited liability company can be tricky because it requires approval of the other partners or members.

9. State Taxes. Some states have begun to levy taxes on the business entity itself. This is becoming a big issue with limited liability companies. You should know whether your state will tax your business entity before setting it up.

10. Expansion. Every entrepreneur wants to be as successful as possible. Some business entities are limited to the number of shareholders they may have. A sole proprietorship ceases to exist the moment the sole proprietor takes on a partner. It is important to choose a business form that allows you the greatest room to grow if that is what you envision. Although the business form may be changed, this involves additional expense and energy.

So, what do you need to know for 2009 (tax year 2008)? Below are up-to-date highlights of key federal income tax law changes for individuals and families, and links to more information on these changes direct from the Internal Revenue Service (IRS). If you do not want to tackle these tax law changes yourself contact Taxes Plus LLC!

Standard Deduction Increased for Most Taxpayers

Nearly two out of three taxpayers choose to take the standard deduction rather than itemizing deductions such as mortgage interest and charitable contributions. The basic standard deduction is:

• $10,900 for married couples filing a joint return and qualifying widows and widowers, a $200 increase over 2007
• $5,450 for singles and married individuals filing separate returns, up $100, and
• $8,000 for heads of household, up $150

Higher amounts apply to blind people and senior citizens. The standard deduction is often reduced for a taxpayer who qualifies as someone else’s dependent.

New this year, taxpayers can claim an additional standard deduction, based on the state or local real-estate taxes paid in 2008. Taxes paid on foreign or business property do not count. The maximum deduction is $500, or $1,000 for joint filers.

Also new for 2008, a taxpayer can increase his standard deduction by the net disaster losses suffered from a federally declared disaster. A worksheet is available in the instructions for Forms 1040 and 1040A.

Exemptions Rise

The value of each personal and dependency exemption is $3,500, up $100 from 2007. Most taxpayers can take personal exemptions for themselves and an additional exemption for each eligible dependent. An individual who qualifies as someone else’s dependent cannot claim a personal exemption, and though personal and dependency exemptions are phased out for higher-income taxpayers, the phase-out rate is slower than in past years.

This is one of more than three dozen individual and business tax provisions that are adjusted each year to keep pace with inflation. A complete rundown of these changes can be found in 2008 Inflation Adjustments Widen Tax Brackets, Change Tax Benefits, from the IRS.

First-Time Homebuyer Credit

Those who bought a main home recently or are considering buying one may qualify for the first-time homebuyer credit. Normally, a taxpayer qualifies if she didn’t own a main home during the prior three years. This unique credit of up to $7,500 works much like a 15-year interest-free loan. It is available for a limited time only — on homes bought from April 9, 2008, to June 30, 2009. It can be claimed on new Form 5405 and is repaid each year as an additional tax. Income limits and other special rules apply. (See more Home/Residence Related Tax Changes)

Contribution Limits Rise for IRAs and Other Retirement Plans

This filing season, more people can make tax-deductible contributions to a traditional IRA. The deduction is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $53,000 and $63,000, compared to $52,000 and $62,000 last year.

For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $85,000 to $105,000, up from $83,000 to $103,000 last year.

Where an IRA contributor who is not covered by a workplace retirement plan is married to someone who is covered, the deduction is phased out if the couple’s income is between $159,000 and $169,000, up from $156,000 and $166,000 in 2007.

The phase-out range remains $0 to $10,000 for a married individual filing a separate return who is covered by a retirement plan at work.

The worksheet in the instructions for Form 1040 Line 32 or Form 1040A Line 17 can help a taxpayer figure the IRA deduction.

For 2008, the elective deferral (contribution) limit for employees who participate in 401(k), 403(b) and most 457 plans remains unchanged at $15,500. This limit rises to $16,500 in 2009. The catch-up contribution limit for those aged 50 to 70 1/2 remains at $5,000 in 2008 but rises to $5,500 in 2009.

The AGI phase-out range for taxpayers who contribute to a Roth IRA is $159,000 to $169,000 for joint filers and qualifying widows and widowers, compared to $156,000 to $166,000 in 2007. For singles and heads of household, the comparable phase-out range is $101,000 to $116,000, compared to $99,000 to $114,000 in 2007. (See more Tax Law Changes Related to IRAs and Other Retirement Plans)

Earned Income Tax Credit Rises

The maximum earned income tax credit (EITC) is:

• $4,824 for people with two or more qualifying children, up from $4,716 in 2007
• $2,917 for those with one child, up from $2,853 last year and
• $438 for people with no children, up from $428 in 2007.

Available to low and moderate income workers and working families, the EITC helps taxpayers whose incomes are below certain income thresholds, which in 2008 rise to:

• $41,646 for those with two or more children
• $36,995 for people with one child and
• $15,880  for those with no children

One in six taxpayers claim the EITC, which, unlike most tax breaks, is refundable, meaning that individuals can get it even if they owe no tax and even if no tax is withheld from their paychecks.

Taxes Lowered for Many Investors

The five-percent tax rate on qualified dividends and net capital gains is reduced to zero. In general, this reduction applies to investors whose taxable income is below:

• $65,100, if married filing jointly or qualifying widow or widower
• $32,550, if single or married filing separately or
• $43,650, if head of household.

Note that taxable income is normally less than total income. The worksheet for Form 1040 Line 44, Form 1040A Line x or Schedule D and its instructions provide details.

Child-Related Tax Changes:

• Adoption Benefits Increase – For 2008, the maximum adoption credit and maximum exclusion from income under your employer’s adoption assistance program have increased.
• Child’s Investment Income – For 2008, new rules apply for children between the ages of 18 and 23 with investment income.
• Earned Income for Additional Child Tax Credit – The minimum earned income amount has increased for 2008.

Education-Related Tax Changes:

• Education Savings Bond Exclusion – Modified adjusted gross income phaseout amounts have increased for 2008.
• Hope and Lifetime Learning Credits – The amount of the education credits and the income phaseout limits have increased for 2008.
• New Form 8917, Tuition and Fees Deduction – To claim the tuition and fees deduction, you must complete Form 8917, Tuition and Fees Deduction, and file it with Form 1040 or Form 1040A.
• Student Loan Interest Deduction – For 2008, the modified adjusted gross income phaseout amounts have increased.

Health and Medical-Related Tax Changes:

• Archer Medical Savings Accounts (MSAs) Limits Increased – For 2008, the minimum annual deductible, maximum annual deductible, and the maximum out-of-pocket expenses limit have increased.
• Health Savings Accounts (HSAs) – The minimum/maximum annual deductible, out-of-pocket expenses,and maximum contribution amounts have increased for 2008.
• Long-Term Care Premiums – For 2008, the maximum amount of qualified long-term care premiums includible as medical expenses has increased.
• Self-Employed Health Insurance Deduction – Self-Employed Health Insurance Deduction Partners and more-than-2% shareholders in an S corporation may be able to claim this deduction when the insurance policy is in the name of the partner or shareholder.

Tax Law Changes Related to Penalties:

• Penalty for Failure to File Income Tax Return Increased – The failure to file penalty has increased for 2008.
• Penalty for Frivolous Tax Submissions Increased – The penalty for frivolous filings has increased for 2008.

More Tax Law Changes for 2009:

• Tax Tips for 2009
• For Individuals
• For Businesses
• For Estates and Trusts
• For Tax-Exempt Organizations
• For IRAs and Other Retirement Plans
• Foreign Issues

Some content reproduced from the Internal Revenue Service (http://www.IRS.gov/).