As we near the end of 2009, businesses should review their annual income tax planning goals to see if they are in need of adjustment or modification before December 31. In doing so, it may be helpful to know what to expect for the year ahead to help reduce your 2009 tax bill and plan for 2010.
Unless new legislation is passed, 2009 will be the last year for some significant opportunities to accelerate deductions in regards to purchases of business equipment. A number of key provisions are set to expire, so now is a good time to look at them before they do.
* Section 179 limits: Until the end of 2009, businesses can elect to deduct otherwise depreciable business property up to $250,000 (with a phase out for purchases in excess of $800,000). In 2010 these amounts will be reduced to $134,000, with a $530,000 phase out.
* Bonus Depreciation: Until the end of 2009, taxpayers purchasing qualifying business property can claim a 50 percent bonus depreciation allowance. Property that qualifies must be new (i.e. property whose original use begins with the taxpayer), depreciable under MACRS and has a recovery period of 20 years or less. Generally this means most machinery, equipment, business vehicles and leasehold improvements. Listed property such as passenger automobiles used 50 percent or less for business and amortizable intangible property do not qualify.
* Reduced recovery periods: Also expiring at the end of 2009 are reduced recovery periods (depreciable lives) of certain types of property. Congress reduced the recovery period from 39 years to 15 years for leasehold improvements, restaurant property and retail improvement property placed in service before December 31. Recovery periods were also shortened from seven to five years for machinery and equipment used in farming. The shorter period does not apply to grain bins, fences and other land improvements. Note that these properties with reduced recovery periods still may qualify for both the bonus and Section 179 depreciation deductions in addition to the regular depreciation which may be taken on them.
New legislation was passed in 2009 which created a number of provisions that business owners should be aware of.
* Alternative motor vehicle credit: Effective for property placed into service in 2009 and 2010, the Recovery Act adds a 10 percent credit up to $4,000 for the cost of converting a motor vehicle to a plug-in-electric vehicle.
* Qualified advanced energy property credits: Beginning after February 17, 2009, qualified energy projects that equip, expand or establish manufacturing facilities that produce certain renewable and alternative energy property can receive a new 30 percent credit for the cost of investments in the projects.
* Employer obligations for COBRA premium subsidies: Designed to help qualifying workers who were involuntarily terminated between September 1, 2009 and December 31, 2009, the new subsidy will cover 65 percent of their health insurance premiums for up to nine months. Although your company is not responsible for paying the subsidy, it is responsible for administering the COBRA coverage.
* Children's Health Insurance Program Reauthorization Act: As of April 1, 2009, you must allow eligible employees and their dependents to enroll in your group health plan within 60 days after they lose coverage under Medicaid or the state children's health insurance program.
* Michelle's Law: Applicable to plan years beginning on or after October 9, this law requires an employer-sponsored group health plan that covers a dependent child who is a college student to provide continued coverage of that child if the child takes a medically necessary leave of absence from school for a serious illness or injury.
* Extended Net Operating Loss (NOL) carry back: The Recovery Act extended the NOL carry back period from two to five years for tax years beginning or ending in 2008 for eligible small businesses (with average gross receipts $15 million or less). This provision can still be used if your company's tax year ends before (but not on) December 31.
The Worker, Homeownership, and Business Assistance Act of 2009 (enacted on Nov. 6) provides a similar election to all businesses (regardless of size) to carry back NOL's for up to five years for NOL's incurred in 2008 or 2009. Under this law, an election to carry back an NOL to the fifth year will be limited by 50 percent of the taxable income for that year. Any remaining NOL can fully offset taxable income in the remaining four carry back years. This new law is available for losses incurred in 2008 and 2009, but not both years. However, an eligible small business that elected under the 2009 Recovery Act to carry back a 2008 NOL may also elect to carry back a 2009 NOL up to five years.
As the year draws to an end don't be surprised to see more changes to tax laws that may be retroactive back to the beginning of 2009. It's always a good idea to keep in touch with your tax advisor for more updated information.
Nevada's Business Taxes: Although Nevada has no income taxes levied upon businesses, there are still a number of taxes and fees businesses in Nevada still must pay, such as:
* Business License Fees: Beginning on October 1, 2009, the Business License Fee will be administered by the Secretary of State's office instead of the Nevada Department of Taxation. The fee for a business license is now $200, effective July 1, 2009 for new business registrations and for the annual renewal fees of businesses with anniversary dates on or after July 1, 2009.
* Sales Taxes: the 2009 legislative session reduced the collection allowance from 50 percent to 25 percent, effective July 1, 2009.
* Modified Business Tax: the 2009 legislature also changed the rates for the Modified Business Tax to .5 percent of taxable wages up to $62,500 per calendar quarter, plus 1.17 percent of the taxable wages in excess of $62,500 per calendar quarter, beginning on July 1, 2009.
* Nevada Minimum Wage: Also effective on July 1, 2009, the Nevada Labor Commission adjusted the minimum wage from $5.85 to $6.55 per hour for employees who receive qualified health benefits from their employers and from $6.85 to $7.55 per hour for those employees who do not receive qualified health benefits.
As with all business planning, knowledge is the key to success. Staying on top of changing laws and regulations will help businesses better succeed in this challenging economy. Being able to take advantage of favorable tax provisions before they expire and knowing which ones to use in advance are all part of a sound business strategy. Be sure and consult with your tax advisor for the most up to date information.
Scott Fields, CPA is a partner at Kohn Colodny, LLP, a full service tax and accounting firm, with offices in Reno and Carson City. He can be reached at 775 885-9136 or scottd@kohncolodny.com.
