Starting in 2008

1. Social Security’s Old-Age, Survivors, and Disability Insurance (OASDI) program limits the amount of earnings subject to taxation for a given year. The same annual limit also applies when those earnings are used in a benefit computation. This limit increases each year with increases in the national average wage index.  For earnings in 2008, this base is $102,000.
2. A Tougher Kiddie Tax. Beginning in 2008, Congress gave the kiddie tax more bite. In 2007, a child’s unearned income over $1,700, such as gains and dividends, was taxed at the parents’ marginal rate until the year the child is 18. Although the threshold increases to $1,800 in 2008, the age is raised to 19 and, for full-time students whose earned income is less than half their support, increased to 24 after this year. This way, families can’t shift appreciated assets to their kids to take advantage of the 0% rate on capital gains, which is discussed below.
3. Increased IRA Contribution Limits. In 2008, the maximum IRA (traditional or Roth) contribution increases from $4,000 to $5,000. Filers who reach age 50 before the end of 2008 can contribute another $1,000.
4. Increased Section 179 Expense Deduction. The maximum amount of equipment placed in service in 2008 that businesses can expense increases to $128,000, a $3,000 increase from 2007. The annual investment limit increases to $510,000 for 2008, up from $500,000 the year before. Thus, you won’t lose the benefit of expensing until you place more than $510,000 of assets in service in 2008.