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The US economy is going through the worst recession in history. The situation is getting from bad to worse every passing day. If corrective measures are not taken and implemented expeditiously, we will soon find ourselves confronting a horrible depression which is feared to be worse than the Great Depression.
Keeping his commitment of providing a significant tax relief to US taxpayers, President-elect Barack Obama has proposed an economic stimulus package called “American Recovery and Reinvestment Plan” which will not only attempt to boost the economy, but will also provide up to $300 billion in tax breaks to individuals and businesses, including $500 tax cuts for most workers and $1,000 for couples, as well as more than $100 billion for businesses.
The tax cuts for individuals and couples would be enacted through reduced payroll deductions. No rebate checks would be issued. For businesses, current year losses would be allowed to offset against prior profits dating back five years instead of the two years currently permitted. The new Congress is expected to approve the rescue legislation soon on a priority basis for Barack Obama to sign it into law shortly after taking office to ease the pain felt by the American people.
2008 was a very busy year for Congress which passed the following tax legislations:

The Economic Stimulus Act of 2008 passed in February providing rebate checks for as much as $1,200 per couple and $600 for individuals.
The Food, Conservation and Energy Act also known as the Farm Act passed in May providing significant tax benefits to farmers, ranchers and timber producers while raising revenue from large corporations.
The Heroes Earnings Assistance and Relief Tax Act also known as the Military Tax Relief Bill passed in May providing help for military personnel receiving combat pay, saving for retirement and purchasing homes.
The Emergency Economic Stabilization Act of 2008 passed in October not only focused on the rescue of the financial markets, but also took care of AMT patch timely, extended a number of sun setting tax provisions, and a new energy incentive provision.

The following are the significant changes that may affect your 2008 tax returns:

If you did not receive the full amount of economic stimulus payment in 2008, you may qualify to receive the difference as Recovery Rebate Credit subject to certain IRS conditions.
0% tax rate for long term gains and dividends for taxpayers in the 10% or 15% tax brackets only.
Sales tax deduction extended for two more years through 2009.
IRA contribution limit increased to $5,000 per taxpayer or $6,000 if you were 50 or older in 2008. It should be noted that contributions cannot be made to a traditional IRA for the year in which you reach age 70 ½ or any year thereafter.
Economic stimulus payments received in 2008 are not taxable.
Tax-free contributions from traditional and Roth IRAs for charitable purposes extended through 2009.
Teachers’ deduction for classroom supply has been extended for 2008 and 2009.
Personal exemption amount increased to $3,500 for 2008 and is subject to phase out for high income taxpayers.
Income limits increased for student loan interest deduction.
In order to stimulate business investment, IRS allows taxpayers a 50% first-year bonus depreciation off the cost or adjusted basis of qualifying property which must be purchased and placed in service after December 31, 2007 and before January 1, 2009 and must meet certain conditions. The bonus first year depreciation is in addition to the regular depreciation.
The maximum Section 179 expense deduction for business equipment purchases in 2008 has doubled to $250,000 and will be fully phased out when equipment purchases exceed $1,050,000.
The maximum earned income tax credit for low income taxpayers with two or more children increased to $4,824 for 2008.
The maximum amount of wages subject to social security tax for 2008 increased to $102,000.
The maximum amount of investment income you can have and still get Earned Income Credit has increased to $2,950.
If you have not owned a home during the last three years or you are a first-time homebuyer, you may take advantage of the special 10 percent credit of the purchase price for homes ranging from $75,000 to $750,000 purchased after April 8, 2008 and prior to July 1, 2009. The credit must be paid back as an additional tax on the taxpayer’s income tax returns over a 15-year period starting 2 years after the credit is taken.
Standard deduction increased for most taxpayers.
The maximum amount of Hope credit you can claim in 2008 is $1,800 per student.
The standard mileage rates for operating your car for business, for moving and medical reasons and for charitable causes were increased twice during the year.
IRS to help financially distressed taxpayers owing back taxes.
For the second time in history after the Great Depression, State of California is expected to issue IOUs instead of refund checks during the current financial crises.
Electronic filing for 2008 tax returns will commence on January 16, 2009.

(Rafique S.M. Ahmed is a professional Tax Accountant and has been providing accounting and tax services in California for more than thirty years. He is also an
Authorized IRS Electronic Filing Provider, located at 1109 Via Verde, San Dimas, California 91773 and can be reached at (909) 599-1412 or 1414.