Have You Done Your 2009 Tax Planning?
|The 2009 tax filing season is upon us. However, there is still some time to do that tax planning to lower that corporate tax bill. There were several changes to the tax code in 2009 that impact businesses; here are a few of the changes that may affect your business:
Standard Mileage Rates: Beginning January 1, 2009, the standard mileage rates for the use of a car will be: 55 cents a mile for all business miles driven, up from 50.5 cents a mile in Janurary 2008.
Depreciation and Section 179 Expense: The maximum section 179 deduction you can elect for property you placed in service in 2009 is $250,000, extended by the American Recovery and Reinvestment Act, for qualified section 179 property. This limit is reduced by the amount by which the cost of section 179 property placed in service during the tax year exceeds $800,000. So when your purchases reach $1,050,000 and above you no longer get the deduction.
Special Depreciation: You may be able to take an additional first year special depreciation allowance for certain qualified property. 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 includes only new property with a recovery period of 20 years or less such as water utility property, off-the-shelf computer software, qualified leasehold improvement property.
Section 179 Expense Limit for SUVs: Businesses should be aware of a change regarding the deduction for certain sport utility vehicles (SUVs) placed in service after October 22, 2004. Under the American Jobs Creation Act of 2004, businesses cannot take a first year deduction of more than $25,000 for an SUV weighing over 6000lbs. The business would depreciate the remaining cost. The new limit does not affect other types of property where the taxpayer decides to expense the cost instead of depreciating the property.
Net operating Losses: If 2009 was not a good year for your business and you incurred a loss for the year, you may be able to take advantage of net operating loss carryback provision in the tax code. This provision allows you to carryback upto 5 years or foreward upto 20 years, a loss from the current year. This can allow you to get back some of those taxes you previously paid to the IRS in the last five years or reduce that tax bill in the future. A great option when cash flow is tight!
There are many things business owners can do to lower their tax bill in 2009. Here are a few ideas you may want to consider:
Contribute to a Retirement Benefit Plan - Your contributions as an owner or employee are tax deductible from your current income, thus reducing your present taxes. A contribution to a tax advantaged retirement plan must come from earned income, meaning compensation for active work. An investor in a business, who isn't active, cannot deduct contributions to the retirement plan. Income generated by your investments accumulates tax free until withdrawn. Types of plans include: IRA, Simple IRA, SEP, 401(k), Simple 401(k), Defined Benefit Plan, Profit Sharing Plan. In some plans, such as a SEP plan, a participant can contribute up to 25% of their compensation, with a maximum contribution of $49,000. That's a pretty good contribution to your retirement!
Contribute to a Health Plan
- Tax rules for health benefits vary, depending on whether or not a business is incorporated. For C-
Corporations medical costs, including insurance premiums paid for by owners and employees are entirely tax deductible to the corporation and tax free to the recipients.
Purchase in 2009, Those Items Needed for the New Year
- This will allow you to realize the tax savings from the purchase in 2009 versus 12 months from now. These deductions can really add up, especially if you take advantage of the IRS Section 179 mentioned above. Provided the listed property is used 50% or more of the time for business. This produces an immediate write-off of capital assets. Some typical assets that qualify for Section 179 include: manufacturing and R&D equipment, some vehicles, cell phones, computers, off-the shelf software. For example, if you buy a $1,000 computer and use it for your business, you could deduct the full cost from your taxes. If you were in the 28% federal income tax bracket, this would save you $280 in income tax. In effect, you'd be getting a 28% discount on the computer.
Purchase a Hybrid or Alternate Fuel Vehicle - You are allowed a limited tax credit for the purchase of a hybrid or alternate fuel vehicle. The credit can range from a few hundred dollars, for vehicles like the 2010 Nissan Altima hybrid, to $3,400 for the Ford Fusion hybrid. All hybrid vehicles manufactured by Honda, Toyota, or Lexus no longer qualify for the credit as of January 1, 2009. Please note that if your vehicle is a depreciable business asset, you must reduce the cost of the vehicle by any section 179 deduction before figuring the credit. Consumers seeking the credit may want to buy early since the full credit is only available for a limited time. Taxpayers may claim the full amount of the allowable credit up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th hybrid passenger automobile or light truck or advance lean burn technology motor vehicle. For each subsequent quarter after the 60,000 mark is achieved, the credit decreases approximately 50%.
Research and Development
- Businesses are allowed a tax credit for
research and development expenditures. The R&D must be related to the discovery of new information which is technological in nature and applies to a new or improved component or product. Those businesses that qualify can get a tax credit of as much as 14% of the R&D expenditures in 2009.
Work Opportunity Credit
- This credit provides businesses with an incentive to hire individuals from targeted groups that have a particularly high unemployment rate or other special employment needs. An employee is a member of a targeted group if he or she is a: Long-term family assistance recipient, qualified recipient of temporary assistance for needy families (TANF), qualified veteran, qualified ex-felon, designated community resident, vocational rehabilitation referral, summer youth employee, food stamp recipient, or SSI recipient. In 2009, the credit was extended to cover unemployed veterans and disconnected youth. This credit ranges from 25% to 50% of the wages paid during the first two years of employment. The percentage deduction is based on the number of hours worked by those certified groups listed above.
Overlooked Deductions - Many business owners fail to take advantage of all the tax deductions available to their business. Here are a few of the more commonly overlooked tax deductions you should be aware of:
- Business travel expense
- Inventory shrinkage
- Accounting fees for tax preparation services
- Bank service charges
- Bad debt expense
- Business related books, magazines, seminars, association dues
- 50% of self employment tax
- Appreciation on property donated to charity
- Trade or business tools with life of one year or less
As a business owner, it's in your best interest to plan for your 2009 tax filing. There are some changes in the tax law that could impact your business. Taking the time now to understand these tax law changes, taking advantage of some of the tax saving ideas above, and ensuring that you do not overlook any tax deductions for your business can have a positive impact on your bottom line! If you would like more information on these tax planning ideas or any others please give us a call!
Note: The information contained in this material represents a general overview of tax regulations and should not be relied upon without an independent, professional analysis of how any of these provisions apply to a specific situation.
Paul J. Beckert MBA, CPA
Pinnacle Business Solutions
Key Points of Interest
The maximum section 179 deduction you can elect for property you placed in service in 2009 remained
at $250,000 for qualified section 179 property.
The Work Opportunity Credit provides businesses with an incentive to hire individuals from targeted groups that have a particularly high unemployment rate or other special employment needs.
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