Tax Changes for Businesses

2008 Changes

Increased Section 179 limits. The maximum section 179 deduction you can elect for qualified section 179 property you placed in service in tax years that begin in 2008 has increased to $250,000 ($285,000 for qualified enterprise zone property and qualified renewal community property). This limit is reduced by the amount by which the cost of section 179 property placed in service in the tax year exceeds $800,000. For qualified section 179 Gulf Opportunity (GO) Zone property placed in service in certain counties and parishes of the GO Zone, the maximum deduction is higher than the deduction for most section 179 property.

Special depreciation allowance for certain property. You may be able to take an additional first year special depreciation allowance for certain qualified property (defined below). The allowance is an additional deduction of 50% of the property.s depreciable basis (after any section 179 deduction and before figuring your regular depreciation deduction).

Property that qualifies for this special depreciation allowance include the following.

• Tangible property depreciated under the modified accelerated cost recovery system (MACRS) with a recovery period of 20 years or less
• Water utitiliy property
• Off-the-shelf computer software
• Qualified leasehold improvement property

Qualified property must also meet all of the following tests.

• You must have acquired qualified property by purchase after December 31, 2007, and before January 1, 2009. If a binding contract to acquire the property existed before January 1, 2008, the property does not qualify.
• Qualified property must be placed in service after December 31, 2007, and before January 1, 2009 (before January 1, 2010, for certain transportation property and certain property with a long production period).
• The original use of the property must begin with you after December 31, 2007.

Property that does not qualify for special depreciation allowance include the following.

• Property placed in service and disposed of in the same tax year.
• Property converted from business use to personal use in the same tax year it is acquired. Property converted from personal use to business use in the same or later tax year may be
• Depreciation limits on business qualified GO Zone property.
• Property required to be depreciated under the alternative depreciation system (ADS).
• Property included in a class of property for which you elected not to claim the special depreciation allowance.vehicles

Depreciation limits on business vehicles. The total depreciation deduction (including the section 179 deduction) you can take for a passenger automobile (that is not a truck or a van) you use in your business and first placed in service in 2008 is $2,960 ($10,960 for automobiles for which the special depreciation allowances applies). The maximum deduction you can take for a truck or a van you use in your business and first placed in service in 2008 is $3,160 ($11,160 for trucks or vans for which the special depreciation allowance applies).

     Caution. These limits are reduced if the business use of the vehicle is less than 100%

Generally, a policyholder owning one or more employer-owned life insurance contracts issued after August 16, 2006, is required to file a report for each tax year the contract(s) is owned. However, you are not required to file a report for any tax year ending before November 14, 2007. For more information, see Form 8925, Report of Employer-Owned Life Insurance Contracts.

2008

You can generally exclude a limited amount of the value of qualified parking and commuter highway vehicle transportation and transit passes you provide to an employee from the employee's wages. For 2008, the monthly exclusion for qualified parking increases to $220 and the monthly exclusion for commuter highway vehicle transportation and transit passes increases to $115. See Qualified Transportation Benefits on page 17 of Publication 15-B.

For 2008, an employer providing a passenger automobile for the personal use of an employee may determine the value of the personal use by using the vehicle cents-per-mile value rule if the vehicle's fair market value on the date it is first made available to the employee does not exceed $15,000 for a passenger automobile other than a truck or van, or $15,900 for a truck or van. For more information, see Cents-Per-Mile Rule on page 20 of Publication 15-B, Employer's Tax Guide to Fringe Benefits.

Generally, all amounts deferred under a nonqualified deferred compensation plan for the tax year and all preceding tax years are included in your employees' wages in the current year, unless the plan meets certain requirements.

These requirements were stated in Notice 2005.1. However, portions of that notice were obsoleted and replaced by final regulations that were effective for tax years beginning after 2007. For more information, see page 3 of Internal Revenue Bulletin 2007-19 for Treasury Decision 9321.

• The capital gain of an S corporation is not treated as passive investment income. This applies to tax years beginning after May 25, 2007. For details, see Internal Revenue Code section 1362(d)(3).
• Generally, restricted bank director stock is not taken into account as outstanding stock of an S corporation. This applies to tax years beginning after 2006. For details, see Internal Revenue Code section 1361(f).
• A special rule applies to banks required to change from the reserve method of accounting on becoming an S corporation. This applies to tax years beginning after 2006. For details, see Internal Revenue Code section 1361(g).
• If a qualified subchapter S subsidiary no longer qualifies because of a sale of its stock, new rules apply as to how such a sale is treated. This applies to tax years beginning after 2006. For details, see Internal Revenue Code section 1361(b)(3)(C).
• Certain S corporations may be able to eliminate all earnings and profits attributable to tax years beginning before 1983. See Public Law 110-28, section 8235.
• An electing small business trust may be able to deduct interest expense on indebtedness it incurred to acquire stock in an S corporation. This applies to tax years beginning after 2006. For details, see Internal Revenue Code section 641(c)(2).
• For tax years ending on or after December 31, 2007, certain corporations with reasonable cause for not timely filing Form 2553, Election by a Small Business Corporation, can request to have the form treated as timely filed by filing it as an attachment to Form 1120S, U.S. Income Tax Return for an S Corporation. For more information, see Form 2553 and its instructions.

2008

The maximum amount of net earnings subject to the social security part of the self-employment tax for tax years beginning in 2008 has increased to $102,000. All net earnings of at least $400 are subject to the Medicare part of the tax.

Conservation Reserve Program (CRP) payments. CRP payments you receive after 2007 are excluded from net earnings from self-employment when figuring your self employment tax if you are receiving social security benefits for retirement or disability. Qualifying individuals will deduct CRP payments on line 1b of the 2008 Schedule SE (Form 1040).

Optional methods to figure net earnings. Form tax years beginning after 2007, the dollar thresholds for using the optional methods to figure net earnings from self-employment have increased. You may use the farm optional method to figure your net earnings from farm self-employment if your gross farm income was $6,300 or less or your net farm profits were less than $4,548. The nonfarm optional method may be used to figure your net earnings from nonfarm self-employment if your net nonfarm profits were less than $4,548 and also less than 72.189% of your gross nonfarm income.

     In 2008, the maximum social security coverage under the optional methods has increased to four credits, the equivalent of $4,200 of net earnings from self-employment. In future years, the thresholds will be indexed to maintain that level of coverage.

2008

The maximum amount of wages subject to the social security tax for 2008 is $102,000. There is no limit on the amount of wages subject to the Medicare tax.

2009

For 2009, the standard mileage rate for the cost of operating your car for business use is 55 cents per mile.

Car expenses and use of the standard mileage rate are explained in chapter 4 of Publication 463, Travel, Entertainment, Gift, and Car Expenses.

Medical- and move-related mileage. For 2009, the standard mileage rate for the cost of operating your car for medical reasons or as part of a deductible move is 24 cents per mile.

See Transportation under What Medical Expenses Are Includable in Publication 502 or Travel by car under Deductible Moving Expenses in Publication 521, Moving Expenses..

Charitable-related mileage. For 2009, the standard mileage rate for the cost of operating your car for charitable purposes remains 14 cents per mile. 

2008

For 2008, the standard mileage rate for the cost of operating your car for business use is:

• 50.5 cents per mile for the period January 1 through June 30, 2008, and
• 58.5 per mile for the period July 1 through December 31, 2008.

Car expenses and use of the standard mileage rate are explained in chapter 4 of Publication 463, Travel, Entertainment, Gift, and Car Expenses.

Medical- and move-related mileage. For 2008, the standard mileage rate for the cost of operating your car for medical reasons or as part of a deductible move is:

• 19 cents per mile for the period January 1 through June 30, 2008, and
• 27 cents per mile for the period July 1 through December 31, 2008.

See Transportation under What Medical Expenses Are Includable in Publication 502 or Travel by car under Deductible Moving Expenses in Publication 521, Moving Expenses..

Charitable-related mileage. For 2008, the standard mileage rate for the cost of operating your car for charitable purposes remains 14 cents per mile.

The work opportunity credit has been extended to cover members of targeted groups who begin work for you before September 1, 2011. For tax years beginning after December 31, 2006, there is no longer an alternative minimum tax limitation with respect to this credit. For more information about this credit, see Form 5884, Work Opportunity Credit.

Members of targeted groups. For employees who begin work for you after December 31, 2006:

• Long-term family assistance recipients are members of a targeted group (if hired before January 1, 2007, see Form 8861, Welfare-to-Work Credit).
• Ex-felons are no longer required to be a member of a low-income family.
• Food stamp recipients must be at least age 18 when hired, but not age 40 or older.

For individuals who begin work for you after May 25, 2007:

• The qualified veterans group is expanded to include veterans entitled to compensation for a service-connected disability and who, during the one-year period ending on the hiring date, were (a) discharged or released from active duty in the U.S. Armed Forces or (b) unemployed for a period or periods totaling at least 6 months. The first-year wages taken into account for these disabled veterans is $12,000.
• The high-risk youth group has been renamed "designated community residents" and expanded to include individuals who are at least age 18 but not yet age 40. In addition, residents of rural renewal counties have been added to this group.

For more information, see Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, and its Instructions.

For individuals who begin work for you after May 25, 2007, the qualified veterans group is expanded to include veterans entitled to compensation for a service-connected disability and who, during the one-year period ending on the hiring date, were (a) discharged or released from active duty in the U.S. Armed Forces or (b) unemployed for a period or periods totaling at least 6 months. The first-year wages taken into account for these disabled veterans is $12,000.

For individuals who begin work for you after May 25, 2007, the high-risk youth group has been renamed "designated community residents" and expanded to include individuals who are at least age 18 but not yet age 40. In addition, residents of rural renewal counties have been added to this group. See the Instructions for Form 8850 for more information.

For tax years beginning after 2006, the work opportunity credit is allowed against both the regular tax and the alternative minimum tax.