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Tips for Cutting Taxes

Jan 1, 2009

As the calendar turns to another year, it's time to get 2008 tax information in order. Taking advantage of all opportunities can reduce the burden. Here are some opportunities, courtesy of the Internal Revenue Service, that are not widely known. If they don't apply to your 2008 return, this is a good time to consider them for the new year.

In hiring, consider taking advantage of the Work Opportunity Tax Credit. This was designed to provide an incentive to hire from certain groups with particularly high unemployment rates, including urban youths, government assistance recipients, ex-convicts, veterans and vocational rehabilitation referrals. The credit has been extended a number of times. Now it's combined with the welfare to work tax credit and extended through Aug. 31, 2011.

The combined credit is available for employers hiring from one or more of nine targeted groups. Depending on the group and circumstances, the maximum credit per employee ranges from $1,200 for qualified summer youth employees, to $5,000 for long term family assistance recipients.

If you own real estate, you might benefit from cost segregation. Real estate holdings represent a significant capital investment. Cost segregation carves out shorter lived assets, which qualify for five, seven and 15 year write off periods, normally imbedded in a building's construction or acquisition costs, and thus depreciated over 39 years. Reclassifying assets and accelerating depreciation could bring tax savings and easier write offs when items become obsolete. Reclassifying assets is most effective for property valued at $1 million or more.

For retailers that are considering buying equipment, enhanced Section 179 may help. The Economic Stimulus Act of 2008 has two incentives for businesses that purchase, "tangible personal property," for use in the business. The first is enhanced Section 179 expensing. For property placed in use during the 2008 tax year, businesses can deduct up to $250,000. The deduction begins to phase out if the business spends more than $800,000. Before the Act, the Section 179 expensing limit was up to $128,000, with a phase out beginning at $510,000.

What property qualifies? Generally, the property must be newly purchased tangible personal property, actively used in the business and for which a depreciation deduction would be allowed. It must be used more than 50 percent for business.

Bonus depreciation is back, offering another incentive to purchase equipment. It is the second incentive in the Economic Stimulus Act. This incentive was used after 9/11 and after the gulf coast hurricanes, to encourage businesses to invest. The new law provides qualifying taxpayers 50 percent first year bonus depreciation of the adjusted basis of qualifying property.

  • To claim bonus depreciation, the assets must be new, qualified property put into service after Dec. 31, 2007. Qualified property must be:
  • Property with a depreciation recovery period of 20 years or less.
  • Depreciable computer software that is not amortizable over 15 years.
  • Water utility property.
  • Qualified leasehold improvement property.

If purchasing equipment isn't practical, there are tax advantages to leasing. If you lease your equipment, you are allowed a full write off of lease expenses each year, no matter the size of your business or the dollar value of the leases.

This information was compiled by Scott Berger, a principal at Kaufman, Rossin & Co., one of the top accounting firms in the Southeast. It was initially provided to the National Federation of Independent Businesses (NFIB).

Topic: Business Strategies

Related Articles: taxes 

Article ID: 894

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