Tax Law Changes
By Vistage member Jeff
Call, Managing Director of Personal Financial
Services, Bennett Thrasher PC
The federal stimulus plan and other legislation has created significant tax
law changes that offer tax-savings on both personal and business tax
positions. Below are explanations of the changes and strategies you can
employ to take advantage of the new laws and complement your overall
stimulus plan, also known as American Recovery and Reinvestment Act of 2009
(ARRA) includes incentives for businesses and will create tax savings and
additional cash flow that can be used to spur economic growth.
Extended Bonus Depreciation and IRC
Section 179 Expensing
ARRA extends the additional 50 percent first-year depreciation through 2009.
The act also extends the temporary $8,000 increase in the first-year
depreciation limit that applies to passenger automobiles that qualify for 50
percent bonus depreciation. In addition, ARRA also extends the 2008 limits
relating to Section 179 expensing. For 2009, the maximum that a taxpayer can
expense using Section 179 is $250,000 (this amount is reduced dollar for
dollar for the cost of qualifying purchases in excess of $800,000). If you
are considering significant fixed asset purchases in the near future, it may
make sense to accelerate these to the 2009 tax year to take advantage of
Net Operating Loss (NOL) Carrybacks
The act allows small businesses (less than $15 million in gross receipts) to
elect to extend the general 2-year carryback rule for 2008 NOL's to 5 years.
Tax rates are expected to increase after the tax cuts enacted during the Bush
administration expire in 2010. For NOL's generated beginning in 2009, it may
be more beneficial to elect to carry the losses forward to reduce taxable income
that is likely to be taxed at higher rates.
Recently, Congress passed an amendment to the NOL provision and extended it
to 2009 and to include all businesses, not just those with income under $15
million as was the law for 2008. A taxpayer may make the election for only
one taxable year, and the amount of any NOL carried back to the 5th taxable
year is limited to 50% of the taxpayer?s income from that year. Those that
made the eligible small business election carryback for 5 years in 2008 are
eligible to make the election again in 2009. Eligible small businesses are
also not subject to the 5th year 50% income limitation mentioned above.
Consolidated Omnibus Budget Reconciliation Act Continuation Premium
The law requires certain group health plans to allow terminated employees to
continue to participate in the group plan for a specified period of time
after separation from employment. ARRA provides that for a period up to nine
months an assistance-eligible individual is treated as having paid any
premium required for COBRA coverage if the individual has paid at least 35%
of the premium. Thus, if the eligible person pays at least 35% of the
premium, the group health plan must treat the individual as having paid the
full required premium and the individual is entitled to a 65% subsidy on the
premium. If, as an employer, you provide this subsidy, then you can claim a
corresponding credit on your quarterly/annual employment tax return (Form
Tax Planning Tips for Businesses
While 2009 tax returns are not due until April 15, 2010, the time to evaluate
your 2009 tax situation is right now. Certain tax planning strategies can
increase your cash flow, but you must take action prior to the end of the
Strategies for Businesses with Increased Profits in 2009
If you expect your 2009 tax bracket to be higher than last year, look for
opportunities to accelerate deductions or defer income. Deferring income to a
year with a lower tax rate will decrease the taxes on that income. Similarly,
accelerating deductions into the year with a higher tax rate will increase
the value of that deduction.
to Defer Income
collection of business debts, rents, and payment for services (if
operating on the cash method of accounting)
year-end compensation/bonuses to right after year-end
sale of capital gain property or take installment payments rather than
retirement plan distributions that are not required
to Accelerate Deductions
- Make next
year's charitable contributions before year-end
deductible interest and property tax payments due in January prior to
Q4 state estimated tax payments prior to year-end (make sure that you
will not be subject to the Alternative Minimum Tax for 2009)
You may not be able to control some of the
items above, but it?s prudent to identify where you have some flexibility in
the timing of these items.
Strategies for Businesses with Decreased Profits in 2009
If you expect the financial struggles of the past 15 months to put you in a
lower tax bracket than previous years, you should look for opportunities to
accelerate income and defer deductions. Hopefully 2010 will be a more
prosperous year for your business and recognizing income during 2009 with the
lower tax rate could provide significant savings. This timing strategy may
not have a significant impact for your 2009 tax planning, but could have a
major impact on your 2010 tax planning.
Take Advantage of Tax Cuts Before They Expire
Many of the tax cuts that were enacted during the Bush administration are set
to expire at the end of 2010. As mentioned above, the billions of dollars
spent on economic recovery efforts during 2009 will likely be paid for, in
part, by tax increases on high net-worth individuals.
While no one knows for sure how tax rates will change, these are some changes
that might take place:
marginal tax rate may increase from 35 to 39.6 percent.
percent qualified dividend and long-term capital gain tax rates may
increase to 20 percent.
bill may impose a surtax of 5.4 percent on singles with Adjusted Gross
Income (AGI) over $500,000 and joint filers with AGI over $1 million.
taxpayers may lose up to 80 percent of their itemized deductions
(charitable contributions, real estate taxes, state income taxes, and
interest ) if their income is high enough.
Given these possible scenarios, revenue or
income may be more valuable to you in 2010 than 2011. As you plan for the 2010
tax year, it?s important to keep these potential changes in mind.
With likely changes in law coming, proactive tax planning is more important
than ever. We encourage you to be in touch with your tax adviser regarding
your personal tax planning strategy to determine the tools and techniques
that will place you in the best financial position.