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Tax Changes for Businesses - 2008
Certain Timber Losses: In determining your
net operating loss (NOL), you can no longer treat income and expenses
attributable to qualified timber property located in the GO Zone, Rita
GO Zone, or Wilma GO Zone as a farming business for 2007 or later years.
Depreciation and Section 179 Expense: Increased Section 179
limits. The maximum section 179 deduction you can elect for qualified
section 179 property you placed in service in tax years that begin in
2008 has increased to $250,000 ($285,000 for qualified enterprise zone
property and qualified renewal community property). This limit is
reduced by the amount by which the cost of section 179 property placed
in service in the tax year exceeds $800,000. For qualified section 179
Gulf Opportunity (GO) Zone property placed in service in certain
counties and parishes of the GO Zone, the maximum deduction is higher
than the deduction for most section 179 property.
Special depreciation allowance for certain property. You may be able to take an additional first year special depreciation allowance for certain qualified property (defined below). The allowance is an additional deduction of 50% of the property's depreciable basis (after any section 179 deduction and before figuring your regular depreciation deduction). Property that qualifies for this special depreciation allowance include the following. Tangible property depreciated under the modified accelerated cost recovery system (MACRS) with a recovery period of 20 years or less Water utility property Off-the-shelf computer software Qualified leasehold improvement property Qualified property must also meet all of the following tests. You must have acquired qualified property by purchase after December 31, 2007, and before January 1, 2009. If a binding contract to acquire the property existed before January 1, 2008, the property does not qualify. Qualified property must be placed in service after December 31, 2007, and before January 1, 2009 (before January 1, 2010, for certain transportation property and certain property with a long production period). The original use of the property must begin with you after December 31, 2007. Property that does not qualify for special depreciation allowance include the following. Property placed in service and disposed of in the same tax year. Property converted from business use to personal use in the same tax year it is acquired. Property converted from personal use to business use in the same or later tax year may be Depreciation limits on business qualified GO Zone property. Property required to be depreciated under the alternative depreciation system (ADS). Property included in a class of property for which you elected not to claim the special depreciation allowance. Depreciation limits on business vehicles. The total depreciation deduction (including the section 179 deduction) you can take for a passenger automobile (that is not a truck or a van) you use in your business and first placed in service in 2008 is $2,960 ($10,960 for automobiles for which the special depreciation allowances applies). The maximum deduction you can take for a truck or a van you use in your business and first placed in service in 2008 is $3,160 ($11,160 for trucks or vans for which the special depreciation allowance applies). Caution. These limits are reduced if the business use of the vehicle is less than 100% Domestic Production Activities Deduction: For tax years
beginning in 2007, 2008, or 2009, the percentage used to figure the
domestic production activities deduction increases to 6%.
A business engaged in
the following lines of business may qualify for the Domestic Production
Activities Deduction. These are the "qualified production activities"
eligible for claiming the deduction under Internal Revenue Code Section
199:
Manufacturing based in the United States, Selling, leasing, or licensing items that have been manufactured in the United States, Selling, leasing, or licensing motion pictures that have been produced in the United States, Construction services in the United States, including building and renovation of residential and commercial properties, Engineering and architectural services relating to a US-based construction project, Software development in the United States, including the development of video games. Employer-Owned Life Insurance Contracts: Generally, a
policyholder owning one or more employer-owned life insurance contracts
issued after August 16, 2006, is required to file a report for each tax
year the contract(s) is owned. However, you are not required to file a
report for any tax year ending before November 14, 2007.
Fringe Benefit Parking Exclusion and Commuter Transportation Benefit: You can generally
exclude a limited amount of the value of qualified parking and commuter
highway vehicle transportation and transit passes you provide to an
employee from the employee's wages. For 2008, the monthly exclusion for
qualified parking increases to $220 and the monthly exclusion for
commuter highway vehicle transportation and transit passes increases to
$115.
Health Savings Accounts: Eligibility. For
2008, a qualifying high deductible health plan (HDHP) must have a
deductible of at least $1,100 for self-only coverage or $2,200 for
family coverage and must limit annual out-of-pocket expenses of the
beneficiary to $5,600 for self-only coverage and $11,200 for family
coverage.
Employer contributions. Up to specified dollar limits, you can generally exclude your contributions (must be in cash) to the health savings account (HSA) of a qualified individual (determined monthly) from federal income tax withholding, social security tax, Medicare tax, and FUTA tax. For 2008, you can contribute up to the following amounts to a qualified individual's HSA. $2,900 for self-only coverage or $5,800 for family coverage. $3,800 for self-only coverage or $7,600 for family coverage for qualified individuals who are age 55 or older at any time during the year. Employers are allowed to make larger HSA contributions for a non highly compensated employee than for a highly compensated employee Maximum Automobile Value for Using the Cents-Per-Mile Valuation Rule: For 2008, an employer
providing a passenger automobile for the first time for the personal
use by an employee may determine the value of the personal use by using
the vehicle cents-per-mile value rule if the vehicle's fair market
value on the date it is first made available to the employee does not
exceed $15,000 for a passenger automobile other than a truck or van, or
$15,900 for a truck or van.
Nonqualified Deferred Compensation Plans: Generally, all
amounts deferred under a nonqualified deferred compensation plan for
the tax year and all preceding tax years are included in your
employees' wages in the current year, unless the plan meets certain
requirements.
These requirements were stated in Notice 2005-1, however, portions of that notice were obsolete and replaced by final regulations that were effective for tax years beginning after 2007. The IRS recently issued a new notice (Notice 2007-86) that extends transitional relief to tax years beginning after 2008. Qualified Transportation Fringe Benefit: For taxable years
beginning in 2007, the monthly limitation regarding the aggregate
fringe benefit exclusion amount for transportation in a commuter
highway vehicle and any transit pass is $110. The monthly limitation
regarding the fringe benefit exclusion amount for qualified parking is
$215.
S Corporations: The following changes
affect S corporations.
The capital gain of an S corporation is not treated as passive investment income. This applies to tax years beginning after May 25, 2007. For details, see Internal Revenue Code section 1362(d)(3). Generally, restricted bank director stock is not taken into account as outstanding stock of an S corporation. This applies to tax years beginning after 2006. For details, see Internal Revenue Code section 1361(f). A special rule applies to banks required to change from the reserve method of accounting on becoming an S corporation. This applies to tax years beginning after 2006. For details, see Internal Revenue Code section 1361(g). If a qualified subchapter S subsidiary no longer qualifies because of a sale of its stock, new rules apply as to how such a sale is treated. This applies to tax years beginning after 2006. For details, see Internal Revenue Code section 1361(b)(3)(C). Certain S corporations may be able to eliminate all earnings and profits attributable to tax years beginning before 1983. See Public Law 110-28, section 8235. An electing small business trust may be able to deduct interest expense on indebtedness it incurred to acquire stock in an S corporation. This applies to tax years beginning after 2006. For details, see Internal Revenue Code section 641(c)(2). For tax years ending on or after December 31, 2007, certain corporations with reasonable cause for not timely filing Form 2553, Election by a Small Business Corporation, can request to have the form treated as timely filed by filing it as an attachment to Form 1120S, U.S. Income Tax Return for an S Corporation. Self-Employed Health Insurance Deduction: Self-Employed Health
Insurance Deduction Partners and more-than-2% shareholders in an S
corporation may be able to claim this deduction when the insurance
policy is in the name of the partner or shareholder. You can either pay
the premiums yourself or the partnership or S corporation can pay them.
However, if you pay the premiums yourself, you must be reimbursed by
the partnership or S corporation to claim the deduction.
Self-Employment Tax: The maximum amount of
net earnings subject to the social security part of the self-employment
tax for tax years beginning in 2008 has increased to $102,000. All net
earnings of at least $400 are subject to the Medicare part of the tax.
Conservation Reserve
Program (CRP) payments. CRP payments you receive after 2007 are
excluded from net earnings from self-employment when figuring your self
employment tax if you are receiving social security benefits for
retirement or disability. Qualifying individuals will deduct CRP
payments on line 1b of the 2008 Schedule SE (Form 1040).
Optional methods to figure net earnings. Form tax years beginning after 2007, the dollar thresholds for using the optional methods to figure net earnings from self-employment have increased. You may use the farm optional method to figure your net earnings from farm self-employment if your gross farm income was $6,300 or less or your net farm profits were less than $4,548. The nonfarm optional method may be used to figure your net earnings from nonfarm self-employment if your net nonfarm profits were less than $4,548 and also less than 72.189% of your gross nonfarm income. In 2008, the
maximum social security coverage under the optional methods has
increased to four credits, the equivalent of $4,200 of net earnings
from self-employment. In future years, the thresholds will be indexed
to maintain that level of coverage.
Social Security and Medicare Taxes: The maximum amount of
wages subject to the social security tax for 2008 is $102,000. There is
no limit on the amount of wages subject to the Medicare tax.
Standard Mileage Rate: For 2009, the
standard mileage rate for the cost of operating your car for business
use is 55 cents per mile.
Car expenses and use
of the standard mileage rate are explained in chapter 4 of Publication
463, Travel, Entertainment, Gift, and Car Expenses.
Medical- and move-related mileage. For 2009, the standard mileage rate for the cost of operating your car for medical reasons or as part of a deductible move is 24 cents per mile. See Transportation under What Medical Expenses Are Includable in Publication 502 or Travel by car under Deductible Moving Expenses in Publication 521, Moving Expenses.. Charitable-related mileage. For 2009, the standard mileage rate for the cost of operating your car for charitable purposes remains 14 cents per mile. Work Opportunity Credit: The work opportunity
credit has been extended to cover members of targeted groups who begin
work for you before September 1, 2011. For tax years beginning after
December 31, 2006, there is no longer an alternative minimum tax
limitation with respect to this credit. For more information about this
credit, see Form 5884, Work Opportunity Credit.
Members of targeted groups. For employees who begin work for you after December 31, 2006: Long-term family assistance recipients are members of a targeted group (if hired before January 1, 2007, see Form 8861, Welfare-to-Work Credit). Ex-felons are no longer required to be a member of a low-income family. Food stamp recipients must be at least age 18 when hired, but not age 40 or older. For individuals who begin work for you after May 25, 2007: The qualified veterans group is expanded to include veterans entitled to compensation for a service-connected disability and who, during the one-year period ending on the hiring date, were (a) discharged or released from active duty in the U.S. Armed Forces or (b) unemployed for a period or periods totaling at least 6 months. The first-year wages taken into account for these disabled veterans is $12,000. The high-risk youth group has been renamed "designated community residents" and expanded to include individuals who are at least age 18 but not yet age 40. In addition, residents of rural renewal counties have been added to this group. Call or send us a message
for more information, or to make an appointment. We are conveniently located in Wilmington, Delaware USA Telephone (302) 378-3734 |
