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Congress Increases Business
Deductions
The
Economic Stimulus package signed into law this week (the Economic
Stimulus Act of 2008) has a few wrinkles that
directly benefit business owners. While most of the focus has
been on the individual rebates (aka advanced credit payments), the new
law raises the equipment expensing limitation under Internal Revenue
Code Sec. 179 from $128,000 to $250,000 in 2008. This means a
business can expense up to $250,000 of qualified property (such
as equipment, machinery, furnishings, certain software, and certain
vehicles) purchased in 2008.
NOTE: The law applies to tax years beginning in
2008, so if you have a business with a March year end, the
increase starts on April 1, 2008.
The
new law also increases the phase out that applies to Sec. 179 purchases
from $510,000 to $800,000. So if you purchase more than $800,000
of equipment in 2008, your Sec. 179 deduction will decrease by each
dollar over the phase out amount. In English, that means that you
would lose the benefit of Sec. 179 entirely if you purchased qualifying
property in excess of $1,050,000.
The
rationale for the increase in Sec. 179 is simple. The increase in
the expensing limit will incentivize businesses to purchase more
equipment in 2008.
In
addition to the increase in the Sec. 179 limits, Congress also has
given qualifying taxpayers 50% bonus depreciation on
qualifying property. This covers qualified property acquired in
2008 (just about all types of depreciable property). The major
exception is if the property's depreciation schedule is greater
than 20 years, then the bonus depreciation will not apply. Still,
this is more good news for businesses.
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California's LLC "Fee" is
Held Unconstitutional
The
California Court of Appeals (First Appellate District) has
affirmed the San Francisco Trial Court's ruling in Northwest
Energetic Services, LLC v. Franchise Tax Board
that California's gross receipts "fee" on LLCs is actually a
tax and, as such, is unconstitutional. I first wrote about
this case in March 2006 when the Trial Court ruled against the
Franchise Tax Board. I suggested at that time that taxpayers
file protective claims in the event the decision was upheld on appeal
(the Franchise Tax Board required such as a condition to getting a
refund). I know I sent dozens of folks the form for the
protective claims, which is great, since those of you who filed
the protective claims may be receiving monies back from the State of California.
The Northwest
Energetic Services, LLC, case is one of
three major LLC fee cases being litigated in California. Its facts deal
with an out-of-state LLC that registered to do business in California, but
did no business in the State. The State of California taxed its worldwide
income even though it did not transact business in the State. The
other two cases, Ventas Finance I and
Bakersfield
Mall, concern LLCs either partially doing
business in the State of California or
exclusively doing business in the State of California. It remains to be
seen how the decision in Northwest Energetic Services, LLC, will
impact these, and other, cases.
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Keep Your
Business Expenses Separate
You should always keep your business expenses and
personal expenses separate. One of the easiest ways to do this is to use
a business credit card. If you use a business credit card for your
corporation or LLC, you will notice that it does not show up on your
personal credit report. You simply agree to be a guarantor and your
business can be approved for its own AMEX in seconds.
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Learn More
About Anderson Business
Advisors
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Are you interested in learning how to properly
account for your business? BOSS Business Services offers intensive
instruction on the following:
One Day workships start at $250 for BOSS clients and
are all taught be licensed professionals.
Click here to visit BOSS
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IRS
Gives Guidance To S-Corporations on Health Insurance
The IRS issued Notice 2008-1, 2008-2 IRB 251 to provide rules for
S-corporation owners who either pay for or reimburse accident and health
insurance premiums via their S-corporations.
If you are a 2% or greater owner of an
S-corporation, the tax laws treat the S-corporation as a partnership when
applying income tax provisions relating to employee fringe
benefits. You will be treated as a partner and any premiums paid or
furnished by the S-corporation is gross income to you. In other
words, it will be reported on your W-2.
However, all is
not lost. The IRS says that if you are a 2% of greater
shareholder of the S-corporation, you can still deduct the cost of the
premiums on your personal return. Here are the rules:
#1: You
cannot be eligible for a subsidized health plan under another employer,
nor can your spouse;
#2: The
insurance premiums cannot exceed your earned income; and
#3: The
plan must be established by the S-corporation (which means,
according to the IRS, that either the S-corporation has to obtain the
health and accident plan in its name and pay all of the premiums -OR- you can obtain
the plan in your name and either the S-corporation pays the premiums or
you get reimbursed).
The major area
of change has to do with #3, above. According to the IRS, you, the
2% or greater shareholder, can obtain an accident or health plan in your
name (not the S-corporation's) and either get reimbursed or have your
S-corporation make the payments and you can still deduct the premiums
(for accountants, the IRC section is 162(l)).
If your
accountant missed this deductions in previous years (the conventional
wisdom was that the plan had to be in the S-corporation's name to
qualify, so many accountants probably did miss this one), you can amend
your returns and write "Amended Pursuant to Notice 2008-1" on
top of the return.
If you would
like an accountant review your taxes at no cost, simply reply to this
e-mail and let me know. I will forward the request to a qualified
business accountant who will conduct a review at no cost for subscribers
to this e-newsletter (no cost means "free" - as in "I
would be crazy not to take you up on this because it can only put more
money back in my pocket).
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Best Wishes,
Toby Mathis
Anderson Business Advisors, PLLC
Circular 230
Disclosure: Any U.S. federal tax advice contained in this communication
is not intended or written to be considered a "covered opinion"
and cannot be used to promote, market or otherwise recommend any
transaction to another third party and will not allow taxpayers to avoid
penalties in the event they engage in wrongful behavior.
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