CURRENT PRESS RELEASES ARCHIVE
View our Latest Press Releases. Subscribe to the TMAP email
list if you would like to be notified of new postings on the site.
2009-02-01 BACK
2008 Business Tax Law Changes
2008 Business Tax Law Changes This article originally appeared in the Texarkana Gazette on February 1, 2009 Dr. Joan Brumm, Professor of Accounting, Texas A&M-Texarkana College of Business There are a number of tax law changes that impact businesses in 2008 and 2009. Section 179 Deductions Section 179 is a tax incentive created by the US Government to encourage businesses to invest in their business by buying equipment. To qualify for the Section 179 Deduction the equipment purchased must be placed into service between January 1, 2008 and December 31, 2008. Typically businesses have to capitalize the cost of equipment purchases. They are allowed to deduct the cost of the equipment through depreciation, but only a little each year. Section 179 of the IRS tax code allows them to deduct the full purchase price of qualifying equipment in the tax year they buy it. The tax savings can be substantial. The maximum amount of equipment placed in service in 2008 that businesses can deduct increases to $250,000. This is a $125,000 increase over the 2007 maximum. Congress mandated the increase in an attempt to help the economy by stimulating investments by businesses. The Section 179 deduction was designed as a small and medium-sized business deduction. Therefore, an investment limit begins to phase out the Section 179 deduction dollar for dollar after $800,000 of equipment purchases in 2008. The annual investment limit for 2007 was $510,000. In 2008 businesses that exceed the $250,000 deduction limit can take a bonus depreciation of 50% on the amount that exceeds the limit. They can write off one-half of the assets cost. The balance of the cost is recovered by depreciation. Assets depreciated over 20 years or less are eligible, including machinery, equipment, land improvements and farm buildings, even leasehold improvements made to the interior of commercial realty. If a business purchased $400,000 of equipment in 2008 they could write off a total of $340,000 ($250,000 Section 179 + $75,000 Bonus First Year Depreciation + $15,000 Normal Depreciation on the remaining purchases). Assuming a 35% tax rate this would result in a tax savings of $119,000 in 2008. The maximum amount of equipment placed in service in 2009 that businesses can expense falls to $133,000 from the $250,000 maximum in 2008. The annual investment limit also drops to $530,000 for 2009 from $800,000 in 2008 and the 50 percent bonus first-year depreciation will no longer be available. Business Standard Mileage Rates Qualifying businesses have the option of using either the business standard mileage rate or the actual cost of operating the vehicle. The business standard mileage rate is an option for taxpayers that have not depreciated the vehicle using the Modified Accelerated Cost Recovery System (MACRS) or claimed Section 179 deduction for that vehicle. The business standard mileage rate cannot be used for vehicles used for hire or for more than four vehicles used simultaneously. The standard business mileage rate for the first six months of 2008 increased to 50.5 cents per mile from 48.5 cents per mile in 2007. To reflect the spike in the price of gasoline during 2008, the rate increased to 58.5 cents per mile for the second half of the year. Beginning on Jan. 1, 2009, the standard mileage rates for the use of a car, van, pickup or panel truck will be 55 cents per mile for business miles driven. This decrease reflects the drop in gasoline prices. Work Opportunity Credit The work opportunity credit was enacted to encourage businesses to hire people from particular groups. Since Dec 31, 2006 people included in this credit are qualified veterans, ex-felons, supplemental security income recipients, long-term family assistance recipients (18 months or longer), summer youth employees, food stamp recipients, high-risk youths, vocational rehabilitation individual referred by the state or the Department of Veteran Affairs. For individuals who begin work for you after May 25, 2007 the definition of a qualified veteran and high-risk youth has been expanded. The high-risk youth group has been renamed "designated community residents". This group now includes individuals who are between 18 and 40 years of age living in an empowerment zone, renewal community, and residents of rural renewal counties. The amount of the credit the employer receives varies depending on the group to which the employee belongs. Capital Gains on Timber Sales For 2008 and 2009, C corporations will be taxed at a maximum of 15 percent from income on timber held more than 15 years. The 15 percent applied to both the regular tax and the Alternative Minimum Tax. After 2009, the special rate for C corporations will no longer apply and the income will be taxed as regular income. There is also a special rate for individual forestland owners. Generally, timber held for more than 12 months qualifies as a long-term capital gain. For the period 2008-2010 a 0% rate will apply to long-term capital gains for qualified individuals. To qualify, your ordinary income, including the timber sales, must fall within the 15% income bracket. For single taxpayers this is $32,550 and for married taxpayers filing jointly it is $65,100. To see how these tax law changes impact your business, consult with your CPA or visit the IRS website. Dr. Brumm can be reached at joan.brumm@tamut.edu
TOP
2008 Business Tax Law Changes
2008 Business Tax Law Changes This article originally appeared in the Texarkana Gazette on February 1, 2009 Dr. Joan Brumm, Professor of Accounting, Texas A&M-Texarkana College of Business There are a number of tax law changes that impact businesses in 2008 and 2009. Section 179 Deductions Section 179 is a tax incentive created by the US Government to encourage businesses to invest in their business by buying equipment. To qualify for the Section 179 Deduction the equipment purchased must be placed into service between January 1, 2008 and December 31, 2008. Typically businesses have to capitalize the cost of equipment purchases. They are allowed to deduct the cost of the equipment through depreciation, but only a little each year. Section 179 of the IRS tax code allows them to deduct the full purchase price of qualifying equipment in the tax year they buy it. The tax savings can be substantial. The maximum amount of equipment placed in service in 2008 that businesses can deduct increases to $250,000. This is a $125,000 increase over the 2007 maximum. Congress mandated the increase in an attempt to help the economy by stimulating investments by businesses. The Section 179 deduction was designed as a small and medium-sized business deduction. Therefore, an investment limit begins to phase out the Section 179 deduction dollar for dollar after $800,000 of equipment purchases in 2008. The annual investment limit for 2007 was $510,000. In 2008 businesses that exceed the $250,000 deduction limit can take a bonus depreciation of 50% on the amount that exceeds the limit. They can write off one-half of the assets cost. The balance of the cost is recovered by depreciation. Assets depreciated over 20 years or less are eligible, including machinery, equipment, land improvements and farm buildings, even leasehold improvements made to the interior of commercial realty. If a business purchased $400,000 of equipment in 2008 they could write off a total of $340,000 ($250,000 Section 179 + $75,000 Bonus First Year Depreciation + $15,000 Normal Depreciation on the remaining purchases). Assuming a 35% tax rate this would result in a tax savings of $119,000 in 2008. The maximum amount of equipment placed in service in 2009 that businesses can expense falls to $133,000 from the $250,000 maximum in 2008. The annual investment limit also drops to $530,000 for 2009 from $800,000 in 2008 and the 50 percent bonus first-year depreciation will no longer be available. Business Standard Mileage Rates Qualifying businesses have the option of using either the business standard mileage rate or the actual cost of operating the vehicle. The business standard mileage rate is an option for taxpayers that have not depreciated the vehicle using the Modified Accelerated Cost Recovery System (MACRS) or claimed Section 179 deduction for that vehicle. The business standard mileage rate cannot be used for vehicles used for hire or for more than four vehicles used simultaneously. The standard business mileage rate for the first six months of 2008 increased to 50.5 cents per mile from 48.5 cents per mile in 2007. To reflect the spike in the price of gasoline during 2008, the rate increased to 58.5 cents per mile for the second half of the year. Beginning on Jan. 1, 2009, the standard mileage rates for the use of a car, van, pickup or panel truck will be 55 cents per mile for business miles driven. This decrease reflects the drop in gasoline prices. Work Opportunity Credit The work opportunity credit was enacted to encourage businesses to hire people from particular groups. Since Dec 31, 2006 people included in this credit are qualified veterans, ex-felons, supplemental security income recipients, long-term family assistance recipients (18 months or longer), summer youth employees, food stamp recipients, high-risk youths, vocational rehabilitation individual referred by the state or the Department of Veteran Affairs. For individuals who begin work for you after May 25, 2007 the definition of a qualified veteran and high-risk youth has been expanded. The high-risk youth group has been renamed "designated community residents". This group now includes individuals who are between 18 and 40 years of age living in an empowerment zone, renewal community, and residents of rural renewal counties. The amount of the credit the employer receives varies depending on the group to which the employee belongs. Capital Gains on Timber Sales For 2008 and 2009, C corporations will be taxed at a maximum of 15 percent from income on timber held more than 15 years. The 15 percent applied to both the regular tax and the Alternative Minimum Tax. After 2009, the special rate for C corporations will no longer apply and the income will be taxed as regular income. There is also a special rate for individual forestland owners. Generally, timber held for more than 12 months qualifies as a long-term capital gain. For the period 2008-2010 a 0% rate will apply to long-term capital gains for qualified individuals. To qualify, your ordinary income, including the timber sales, must fall within the 15% income bracket. For single taxpayers this is $32,550 and for married taxpayers filing jointly it is $65,100. To see how these tax law changes impact your business, consult with your CPA or visit the IRS website. Dr. Brumm can be reached at joan.brumm@tamut.edu
TOP