May Newsletter

nEWSLETTER - May 2008 513-530-9000

The Economic Stimulus Act of 2008

Stimulus Payments:

The 2008 economic stimulus payments are not the same as tax refunds. When the 2008 economic

stimulus payments (aka "rebates") were first announced, many individuals mistakenly believed that

the stimulus payments were an advance on next tax year's refund. An economic stimulus payment,

however, is not the same as a refund from the IRS. It will not affect next year's tax liability. It's not

taxable. Moreover, it will not increase your tax liability next year, when you file your return for the

2008 tax year.

New 50-Percent Depreciation Allowance:

The IRS announced it will issue guidance for businesses on how the special 50 percent depreciation allowance that was included in the Economic Stimulus Act of 2008 can be used to make capital investments this year. Until the guidance is issued, businesses may rely on the regulations previously issued regarding bonus depreciation.

The Economic Stimulus Act of 2008 provided a significant tax incentive for businesses to make capital investments by adding a special 50 percent depreciation allowance for qualifying purchases. This special “bonus depreciation” allowance is available to all businesses and applies to most types of tangible personal property and computer software acquired and placed in service in 2008. It allows taxpayers to deduct 50 percent of the cost of qualifying property in addition to the regular depreciation allowance that is normally available.

As part of the Department’s continuing efforts to help taxpayers take advantage of the business provisions included in the Economic Stimulus Act of 2008, the Treasury Department and IRS are also preparing additional guidance to address a number of issues that have been identified. Taxpayers are encouraged to bring issues to the attention of the IRS that may require expedited guidance to ensure that taxpayers are able to fully realize the benefits of these incentives. Please contact us for further support and guidance.

The upcoming guidance will also cover the new increased limits that businesses can expense under the Economic Stimulus Act of 2008. Generally, the new law set a limit of $250,000 that a business can expense during 2008, up from the limit previously set for 2008 of $128,000.

Haven't Filed an Income Tax Return?

Filing a past due return may not be as difficult as you think. Getting it done for the 2007 tax year is important because in order to receive your economic stimulus payment this year you need to file a 2007 federal tax return by October 15. Remember, a delay in filing your tax return will also delay your receipt of your economic stimulus payment since payments are based on the tax return. You can still receive one this year if you file by October 15, 2008.

Taxpayers should file all tax returns that are due, regardless of whether or not full payment can be made with the return. Depending on an individual’s circumstances, a taxpayer filing late may qualify for a payment plan. All payment plans require continued compliance with all filing and payment responsibilities after the plan is approved. It is important, however, to know that full payment of taxes saves you money.

¨ Payment Options - Ways to Make a Payment

There are several different ways to make a payment on your taxes. Payments can be made by credit card, electronic funds transfer, check, money order, cashier’s check, or cash.

¨ Payment Options – For Those Who Can’t Pay in Full

Taxpayers who need more time to pay can find out in just a few minutes whether they qualify for a payment agreement with the IRS. Just click on the Online Payment Agreement link and follow the prompts. By entering some basic information about their tax situation, eligible taxpayers can set up in a matter of minutes either a short-term payment extension or a monthly payment plan.

- A short-term extension gives a taxpayer up to 120 days to pay. No fee is charged, but the late-payment penalty plus interest will apply.

- A monthly payment plan or installment agreement gives a taxpayer more time to pay. Though interest still applies, the late- payment penalty is cut in half for any month an installment agreement is in effect. This reduced rate of 0.25 percent (1/4 of 1 percent) per month is only available if the tax return was filed on time.

A user fee will also be charged if the installment agreement is approved. The fee, normally $105, is reduced to $52, if taxpayers agree to make their monthly payments electronically through electronic funds withdrawal. The fee is $43 for eligible low-and-moderate-

income taxpayers.

Alternatively, taxpayers can apply for a payment agreement by filling out Form 9465, Installment Agreement Request. This form can

be filed along with either an electronically filed return or a paper return. If filing on paper, be sure to attach it to the front of the return.

Employee Versus Independent Contractor

If you hire someone for a long-term, full-time project or a series of projects that are likely to last for an extended period, you must pay special attention to the difference between independent contractors and employees. The IRS considers the following:

¨ What instructions the employer gives the worker about when, where and how to work. The more specific the instructions and the more control exercised, the more likely the worker will be considered an employee.

¨ What training the employer gives the worker. Independent contractors generally do not receive training from an employer.

¨ The extent to which the worker has business expenses that are not reimbursed. Independent contractors are more likely to have unreimbursed expenses.

¨ The extent of the worker's investment in the worker's own business. Independent contractors typically invest their own money in equipment or facilities.

¨ The extent to which the worker makes services available to other employers. Independent contractors are more likely to make their services available to other employers.

¨ How the business pays the worker. An employee is generally paid by the hour, week or month. An independent contractor is usually paid by the job.

¨ The extent to which the worker can make a profit or incur a loss. An independent contractor can make a profit or loss, but an employee does not.

¨ Whether there are written contracts describing the relationship the parties intended to create. Independent contractors generally sign written contracts stating that they are independent contractors and setting forth the terms of their employment.

¨ Whether the business provides the worker with employee benefits, such as insurance, a pension plan, vacation pay or sick pay. Independent contractors generally do not get benefits.

¨ The terms of the working relationship. An employee generally is employed at will (meaning the relationship can be terminated by either party at any time). An independent contractor is usually hired for a set period of time.

¨ Whether the worker's services are a key aspect of the company's regular business. If the services are necessary for regular business activity, it is more likely that the employer has the right to direct and control the worker's activities. The more control an employer exerts over a worker, the more likely it is that the worker will be considered an employee.

Minimize the Risk of Misclassification

If you misclassify an employee as an independent contractor, you may end up before a state taxing authority or the IRS. Sometimes the issue comes up when a terminated worker files for unemployment benefits and it's unclear whether the worker was an independent contractor or employee. The filing can trigger state or federal investigations that can cost many thousands of dollars to defend, even if you successfully fight the challenge.

There are ways to reduce the risk of an investigation or challenge by a state or federal authority. At a minimum, you should:

¨ Familiarize yourself with the rules. Ignorance of the rules is not a legitimate defense. Knowledge of the rules will allow you to structure and carefully manage your relationships with your workers to minimize risk.

¨ Document relationships with your workers and vendors. Although it won't always save you, it helps to have a written contract stating the terms of employment.