Tax Mavens - Monthly article in Business Watch magazine

Valerie Laufenberg, CPA
Julie Bogle, JD

click here to read previous articles

The Bailout
December 2008

The Financial Markets Rescue Plan (also known as the "bailout bill") included a number of tax provisions affecting businesses. These include extensions and revisions of existing tax benefits that had expired or were set to expire.

Research Tax Credit
One of the most popular business tax incentives is the research tax credit, which had expired at the end of 2007. The new law extends the research tax credit to amounts paid or incurred in 2008 and 2009, and raises the credit from 12 percent to 14 percent of qualified research expenses.

Leasehold and Restaurant Improvements
Before the new law passed, special depreciation deductions available for qualifying restaurant improvements and leasehold improvements had expired. Under the new law, qualifying improvements will be eligible for 15-year cost recovery rather than a 39-year period for two more years, through December 31, 2009. Similarly, Congress authorized a 15-year recovery period for depreciation of certain improvements to retail space. This treatment is extended through December 31, 2009.

Charitable Contributions
Businesses are entitled to enhanced deductions for contributions of food to charitable organizations, as well as contributions of books and computer equipment to qualifying schools. The new law extends these tax breaks through December 31, 2009. S corp shareholders are also eligible for special tax treatment when making charitable contributions of qualifying property. The new law extends the special rule allowing S corp shareholders to take into account their pro-rata share of charitable deductions even if such deductions would exceed such shareholder's adjusted basis in the S corp through December 31, 2009.

New Markets Tax Credit
The new law extends the New Markets Tax Credit through December 31, 2009.This credit is intended to encourage taxpayers to invest in or make loans to small businesses in economically distressed areas. With today's credit crunch, extension of the New Markets Tax Credit may help small businesses obtain financing that otherwise would not be available.

Energy Efficient Construction
The bailout bill extended through December 31, 2013 the special deduction for construction costs related to energy-efficient commercial buildings.

Renewable Energy
Included in the new law are several extended incentives to encourage the production of renewable energy. Congress extended the credit for producing electricity from qualified wind facilities through December 31, 2009, and the credits for producing electricity through biomass and other qualifying renewable sources through September 30, 2011. The credit for solar energy, fuel cell, and microturbine property is extended through December 31, 2016. The new law expands the definition of some of the renewable energy sources, such as biomass, entitling more producers to the tax incentives.

Transportation Fringe Benefit
Employees can exclude certain employer- provided transportation fringe benefits from income, such as transit passes and van pooling. The new law extends this treatment to employer-provided transportation fringe benefits paid to employees who commute by bicycle. The exclusion amount is $20 per month. This treatment is effective for tax years beginning after December 31, 2008.

Disaster Relief
The new law provides temporary relief to victims of the severe storms, tornadoes, and flooding that swept through the Midwest this past summer, including Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, and Wisconsin between May 20, 2008, and before August 1, 2008. Relief provisions include increased expensing for demolition, environmental remediation, and clean-up costs and enhanced depreciation for qualified disaster property.

FUTA Surtax
The new law extends the 0.2 percent surtax on FUTA (unemployment) taxes for one year, through 2009. FUTA tax is 6.2 percent of wages. The change is expected to raise $1.5 billion. The tax is imposed on the first $7,000 paid to each employee.