No one knows exactly what the tax landscape will look like in 2009. After a presidential election, a mortgage crisis, the downfall of several major financial institutions and a government bailout, the one thing
we can be sure of is change.
The best tax planning advice possible for
businesses and individuals is to take advantage of opportunities that exist today. It is
always important to talk to your accountant
prior to the end of a year to ensure there are
no surprises come April 15 and that your
company is positioned to fully benefit from
the tax advantages available.
“Companies looking to make capital investments in 2009 should consider accelerating
those purchases, assuming it makes good
business sense, to take advantage of write-off
opportunities,” says Clifford Sussman, CPA,
director in the entrepreneurial services group
at SS&G Financial Services, Inc.
Likewise, businesses that are in the midst
of a buy-sell process should aim to wrap up
dealings by year-end to benefit from the current capital gains tax rate and avoid a potential increase from the new administration.
Smart Business spoke with Sussman
about tax opportunities for businesses and
individuals and why now is the time to exercise one’s right to various deductions.
What legislation passed in 2008 will affect
individual and business tax planning?
In early 2008, the Economic Stimulus Act
gained public attention because of rebates
granted to taxpayers. Meanwhile, this legislation afforded businesses enhanced expensing capabilities with respect to capital expenditures. The Section 179 deduction for qualifying fixed assets, placed in service in 2008,
was increased from $128,000 to $250,000.
The phaseout of the deduction was also
increased from $400,000 to $800,000. The
incentive was designed to encourage business owners to invest in their companies.
Over and above the Section 179 deduction,
business owners may qualify for an accelerated bonus first-year depreciation on qualified depreciable property. The bonus depreciation provides for 50 percent depreciation
during the first year on qualifying assets and
may include software and qualified leasehold
improvements. Aside from tax opportunities
created by the Economic Stimulus Act, the Housing Assistance Tax Act provided certain
first-time homeowners a one-year credit of
up to $7,500 for purchasing a house between
April 9, 2008, and June 30, 2009.
How does the bailout affect tax planning?
In particular, the bailout package extended
available research and development tax
credits to businesses. On an individual note,
the bailout legislation increased the alternative minimum tax (AMT) patch from $45,000
to $69,950 for joint filers. The purpose is to
alleviate the burdensome tax from the middle class. An accountant can better advise
how the R&D credit and AMT patch affect
tax liability for individuals and businesses.
Why should businesses act now when it
comes to buying or selling a business?
With a possible increase in capital gains
legislation — some say up to 10 percent —
businesses that are in the process of buy/sell
transactions or are considering capital
investments should work to complete those
deals before the close of fiscal 2008. We can
count on established capital gains tax rates
today. But next year, there are no guarantees
as to what the rates will be.
What should investors do to convert market
losses into tax advantages?
Individual investors should sit down with
their financial planners and discuss the current market and the performance of stocks
and mutual funds in their portfolios. Based
on that advice, it may be a good idea to consider selling nonperformers before year-end
to realize the losses and tax benefits that
come with them. Married individuals filing
jointly can deduct up to $3,000 a year for capital losses. Harvest capital losses this month,
before the calendar year turns.
What conversations should business owners
have with lenders as they plan for 2009?
Business owners should be proactive and
initiate discussions with lenders regarding
debt. While this is more of a business strategy than a tax planning remark, in this economy, business owners should keep open lines
of communication with lenders to ensure
they are meeting the lenders’ requirements
and really understand what their lenders are
looking for. Review loan covenants and discuss any implications that might deter the
business from meeting those requirements.
With the state of the credit markets, these discussions are best not left on the back burner
until 2009. Businesses should be open, ask
questions and make sure lenders understand
their market position and growth goals.
Will any additional tax benefits be available?
Individuals 70.5 years of age and older can
donate up to $100,000 of their IRA to charitable organizations in 2008 and 2009 without
recognizing reportable income and without
taking a charitable deduction. This law ended
in 2007, but was reinstituted through the
Emergency Economic Stabilization Act of
2008. The extension of this provision will
allow for additional tax and estate planning
opportunities through 2009. As a result, individuals who do not need to take distributions
from their IRAs and prefer to avoid tax on the
minimum required distributions may again
donate up to $100,000 in 2008 and 2009 with
no reportable income and no deduction.
CLIFFORD SUSSMAN, CPA, is a director in the entrepreneurial services group at SS&G Financial Services, Inc. (www.SSandG.com).
Reach him at (800) 869-1834 or [email protected].
