Lewes CPA
officeProgar & Company, P.A.
Certified Public Accounting services for businesses and individuals
How businesses are affected by tax changes in the Emergency Economic
Stabilization Act of 2008
Dear Reader:
As I'm sure you're aware, on Oct. 3, 2008, the President signed into
law the Emergency Economic Stabilization Act of 2008 (P.L. 110-343).
Although virtually all of the press coverage of this law has
concentrated on its hotly debated $700 billion financial industry
bailout plan, the legislation also contains scores of mostly
beneficial tax changes for business.
Most of the new law's tax changes for business fall into one of
these categories: tax changes that apply to a wide range of
businesses; special tax breaks for disaster areas; and tax changes
for specialized industries (there are numerous tax breaks relating
to alternative energy production, but they are highly specialized
and so not covered in this letter).
Tax breaks that apply to a wide range of businesses.
The major news for business is that the research tax credit has been
extended through 2009. The new law also makes a number of important
changes in the way the research credit is calculated, effective for
tax years beginning after 2008.
Other, widely applicable tax breaks for business include the
following:
-
The FUTA (Federal Unemployment Tax Act) tax rate had been
scheduled to drop to 6% after 2008, but under the new law it
will remain at 6.2% through 2009 and will drop to 6% for 2010
and later.
-
For property placed in service after Aug. 31, 2008, the new law
permits 50% first year bonus depreciation for qualified reuse
and recycling property. In general, this is machinery and
equipment (not including buildings or real estate), along with
associated property, including software necessary to operate the
equipment, which is used exclusively to collect, distribute, or
recycle qualified reuse and recyclable materials. This break is
not limited to businesses in the recycling industry.
-
A two year extension through 2009 of enhanced charitable
contribution deduction rules for gifts of certain types of food
inventory, and corporate gifts of book inventory or computer
equipment to schools.
-
A two year extension through 2009 for the tax break that allows
expensing of qualified environmental remediation expenses,
namely cleanup of hazardous substances (including petroleum
products) at qualified contaminated sites.
-
The deduction for energy efficient commercial building property
has been extended so that it applies through 2013.
-
For purchases after 2008 and before 2015, taxpayers will be able
to claim a tax credit for electric drive motor vehicles.
-
After 2008, companies will be able to give employees who commute
by bicycle a $20 per month tax-free reimbursement for reasonable
bicycle related expenses.
Tax breaks for businesses in disaster areas.
The new law creates a new set of tax relief provisions for
businesses hit by events such as storms, hurricanes, and floods
anywhere in the U.S. that are declared to be federal disasters after
2007 and before 2010. These are of great importance to businesses
because many federal disasters have already been declared in
numerous states in 2008 and many others are likely to occur before
the tax breaks sunset.
Here's a summary of the new relief provisions:
Qualified disaster expenses, such as cleanup (removal of debris,
demolition of structures) and repairs, may be expensed.
A 5-year net operating loss (NOL) carryback applies instead of the
usual 2-year carryback.
For qualified Section 179 disaster assistance property placed in
service after 2007, with respect to disasters declared after 2007,
the maximum expense amount that can otherwise be deducted under
Section 179 is increased by $100,000 and the beginning-of-phase-out
amount otherwise in effect for the tax year is increased by
$600,000.
A 50% first-year bonus depreciation allowance applies to most types
of machinery and equipment bought to rehabilitate or replace damaged
property. A number of conditions must be met, and certain types of
property are excluded.
The new law also includes a number of specialized provisions for
victims of a Midwest disaster area (counties in ten Midwest states
declared to be a major disaster after May 19, 2008, and before Aug.
1, 2008).
Tax breaks for specialized industries.
Tax breaks in the new law mainly benefiting specific industries
include the following:
Financial institutions—may treat post-2007 losses on Fannie Mae and
Freddie Mac preferred stock as ordinary losses instead of capital
losses; for tax years ending after Oct. 2, 2008, the $1 million
deduction cap on compensation paid to certain top officers is
reduced to $500,000 if the company participates in the federal
government's “troubled assets relief program” (TARP); and the
“golden parachute” deduction restrictions apply to severance
payments to certain top executives of companies participating in
TARP. Finally, for securities acquired after 2010 (later dates apply
to some specialized securities), brokers will have to report the
customer's adjusted basis in the security sold, and whether any gain
or loss is short- or long-term.
Farming—there's a 5-year quick depreciation writeoff for most farm
machinery and equipment placed in service after 2008 and before
2010.
Real estate, retailers, and restaurants—the 15-year depreciation
writeoff for qualifying leasehold improvements and qualifying
restaurant property has been extended through 2009. What's more, for
property placed in service after 2008 and before 2010, (a) buildings
as well as building improvements may qualify for the quick writeoff
for restaurant property; and (b) the 15-year depreciation writeoff
also applies to qualifying retail improvement property.
Construction companies—the $2,000 tax credit for building energy
efficient homes ($1 million for manufactured homes) has been
extended to apply to homes acquired through 2009. Note that
construction companies also may benefit indirectly from the extended
and enhanced tax breaks for real estate, restaurants, and retailers.
Film and TV—the option to expense up to $15 million of qualifying
film and TV productions ($20 million if produced in certain
low-income areas) is extended so that it applies for productions
beginning before 2010; also, the qualified domestic production
activities deduction has been liberalized in several ways for this
industry, effective for tax years beginning after 2007.
Motorsports racing—the short 7-year writeoff for land improvements
and support facilities at motorsports entertainment complexes has
been extended to apply for property placed in service before 2010.
Oil and gas—there are three significant changes: (1) the otherwise
available domestic production activities deduction for companies
that have oil-related income will be reduced after 2009 (a complex
reduction formula will apply); (2) the rule providing that
percentage depletion from marginal oil and gas wells isn't limited
to 100% of income from these properties is extended for tax years
beginning in 2009; and (3) the rules relating to foreign tax credits
for the oil and gas industry have been revised for tax years
beginning after 2008.
Mining—the tax credit for mine rescue training and the election to
expense 50% of the cost of certain mine safety equipment both have
been extended so that they apply through 2009.
Please keep in mind that I've described only the highlights of how
the new law affects businesses. If you would like more details,
please call me at your convenience.