New Tax Tips for Businesses
In these lean times, there's one move that's always smart--preserve your cash by making sure your business gets every tax deduction possible. It's not always easy to keep track of all the deductions you might qualify for because our tax code keeps changing.
Recently, the IRS released a list of 11 important changes that affect business tax returns for 2008. A few key changes:
Business purchase write-offs: In an effort to stimulate business growth, the Section 179 depreciation allowance for business equipment or property has been expanded for the 2008 tax year only. Business owners can write off up to $250,000 in qualified purchases, double the amount in 2007. In addition, your purchases can total up to $800,000 in all (up from $500,000) without reducing your first-year depreciation write-off.
If using the Section 179 deduction doesn't cover all you spent, you can use a greatly expanded, first-year special depreciation deduction for up to 50 percent of the remainder, up to the $800,000 limit. For 2008, this special deduction also includes vehicle purchase costs.
In 2008, if you bought a vehicle for business use, you can depreciate up to $10,960 for cars or $11,160 for heavier trucks or vans through this deduction. Anything less than 100 percent business use of the vehicle reduces the deduction.
S corporation income: There's good news for S corps that have income such as investment returns or rent payments. For tax years beginning after May 25, 2007, such income will no longer be classified as passive income, but is considered regular income.
This is a win-win situation in this economy: Not only does the company get a lower tax rate, but any losses realized in selling the real estate or stocks in 2008 should be deductible. By contrast, losses from the sale of assets categorized as passive income may not be deductible.
Standard mileage rate: The reimbursement rate for business-related driving comes in two parts this year. Where it was 48.5 cents per mile throughout 2007, spiking gas prices last year prompted the IRS to amend the rate for 2008 to 50.5 cents for the first half of the year, and 58.5 cents for the second half.
Deferred compensation plans: Income deferred under a nonqualified deferred compensation plan is usually taxed the year the deferral is made. But the IRS changed the complex rules on this issue for 2008, so if you deferred income, be sure to check the fine print to see if you owe the tax now or can wait to pay it.
Work opportunity tax credit: This program to reward businesses that hire particular categories of disadvantaged workers has been extended to cover hires into 2011. The list of qualified workers has been expanded as well, to include workers in distressed rural areas, older residents of high-crime communities and more veterans.
Self-employment tax: If you pay self-employment tax, note that the amount of income subject to Social Security tax rose from $97,500 in 2007 to $102,000 in 2008.
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