Year-End Tax Planning Strategies for Business
- Qualifying businesses can expense up to $250K of Section 179 property purchased in a tax year beginning in 2008 (reduced if all eligible Section 179 property purchased in 2008 exceeds $800K).
- Maximum expensing limit for SUV’s over 6K pounds remains at $25K.
- Can change Section 179 election on an amended return for 2007 and after.
- Use Section 179 election as a way to avoid the mid-quarter convention.
- Bonus depreciation is back! Can expense 50% of the basis of qualifying property purchased in 2008. Software qualifies. No AMT preference applies.
- Bonus depreciation is allowed on qualified leasehold improvements (to the interior of a building, non-residential real property, made pursuant to a lease, the building has been in service at least three years).
- First-year depreciation on luxury autos has been increased by $8K, providing $10,960 depreciation in year one.
- Use of “cost segregation study” to depreciate components of a building over shorter life (performed on new or existing construction, use of a qualified engineer recommended).
- Domestic Production Activities Deduction - 6% of “Qualified Production Activities Income.”
- Retroactive extension and modification of the research tax credit for 2008 and 2009. New tax credit rate of 14.5% in effect.
- Energy Efficient Incentives for business - $1.80 per sf for the cost of energy saving improvements to commercial buildings, includes lighting (reduced deduction) and HVAC. The deduction reduces depreciable basis.
- Consider electing LIFO inventory method, election made on Form 970 by extended due date of return.
- Consider change in accounting methods, automatic and non-automatic, updated procedures in Rev Proc 2008-52.
- S-Corp shareholder health insurance, Notice 2008-1: Premium required to be included in W-2. If shareholder pays personally, S-Corp must reimburse the shareholder in order for it to be deductible by the shareholder for AGI.
- S-Corp loans from shareholders should be documented with a cognovit note and stipulate repayment terms.
- Late S-Corp elections can be filed with form 1120S by the extended due date, see Rev Proc 2007-62 for guidance.
- Avoid unreasonably low compensation for S-Corp owners, pay shareholders as much as the highest non-shareholder employee, or pay the FICA limit.
- Maximize retirement plan contributions, utilize catch-up contributions where eligible, evaluate plan for changes when deferrals are being limited.
- Deferred compensation plans must be in compliance with Section 409(A) by 12/31/08. Plans must be in writing, work with an attorney to get this done.
- Return preparer standards revised retroactively to the 2007 Small Business Tax Act.
Note: This is not a complete list of all business tax planning ideas. Please give us a call to discuss an idea in greater depth or to inquire about an idea not on this list.
Disclaimer: This document represents a general overview of recent tax developments and should not be relied upon without an independent, professional analysis of how any of these provisions may apply to your specific situation. Any tax information contained in the body of this narrative was not intended or written to be used, and cannot be used, by the recipient for the purposes of avoiding penalties that may be imposed under the Internal Revenue Code or provisions of applicable state or local law.