Economic Stimulus Act of 2008 — Will You Benefit?

Individual taxpayers will receive tax rebates of more than $105 billion under the stimulus legislation enacted in February. And tax incentives of nearly $45 billion will be available to businesses that make new investments in capital equipment. Will any of those dollars find their way to your wallet?

Cash Rebate Details

Your eligibility for a rebate and the amount you’ll receive, if any, will be based on your 2007 federal income-tax return information.

 The maximum basic credit is $600 for individuals and $1,200 for married couples filing jointly.

 An additional credit of up to $300 will be paid for each qualifying child under age 17.

 If your adjusted gross income (AGI) was more than $75,000 ($150,000 for joint filers), your rebate will be reduced by 5% for each $1,000 of AGI over the threshold.

Certain lower income individuals who don’t normally file tax returns also may be eligible for a cash rebate of $300 (individual) or $600 (married). For example, individuals living on Social Security or veteran’s disability payments may be eligible if their qualifying income was at least $3,000. To receive a rebate in this situation, a tax return must be filed.

Section 179 Expensing

Business taxpayers that invest in machinery, equipment, or other eligible fixed assets can reduce their effective cost by electing to expense their purchases under Section 179 of the tax code. Although amounts expensed under Section 179 cannot also be depreciated, the expensing deduction is generally more beneficial than depreciation because tax savings are realized sooner.

For 2008 only, the Section 179 expensing limit is increased to $250,000. Previously, the limit had been $128,000. Once 2008 purchases rise above $800,000 (formerly $510,000), the $250,000 expensing limit is phased out dollar-for-dollar.

50% Bonus Depreciation

The tax law’s depreciation provisions generally require that depreciation deductions be spread out over several years. The stimulus law gives businesses an opportunity to front-load their first-year depreciation deduction by claiming 50% “bonus” depreciation. Most types of assets (other than real property) can qualify for the bonus depreciation, assuming the assets are new when first placed in service by the business. Any portion of an asset’s cost that isn’t deducted under Section 179 and/or the 50% bonus provision may be depreciated under the normal rules.

Higher Limit on Auto Depreciation

The stimulus law raises by $8,000 the first-year depreciation limit that otherwise applies to business autos, light trucks, and vans acquired and placed in service during the 2008 calendar year.

Health Insurance Deduction Rising health insurance costs have made tax deductions for premium payments all the more valuable. Certain S corporation shareholder-employees stand to benefit from a recent IRS notice addressing the deductibility of premiums paid for their health coverage. Here’s the story. If an S corporation picks up the cost of health coverage for a shareholder-employee who owns more than 2% of the corporation’s outstanding stock, the shareholder has to include the benefit in gross income. An offsetting “above-the-line” deduction is generally available to the shareholder on his or her personal return, assuming certain tax law requirements are met. Net result to the shareholder: The benefit is income-tax free. However, in 2006, the IRS said that this favorable tax treatment isn’t available to an individual who is an S corporation’s sole shareholder and employee if the insurance is purchased in the shareholder’s name. The IRS has now relaxed its position and will allow the above-the-line deduction.