You may already know about new tax laws that impact small businesses as they go about preparing their 2008 tax returns.
The 2009 tax year also brings with it several changes to business tax law. Some of these laws are already legislated and in the public domain; more may follow, particularly due to current economic and political factors.
Through these changes, remember that tax planning is a year-round event and is closely tied to your overall small business planning cycle.
Tax laws often define and support your small business investment and growth strategies (get tips here on how to manage your tax obligations throughout the year). It’s important, therefore, to take stock and assess now how your business can comply with, and benefit from, 2009 tax law changes.
Below is a summary of the major changes in federal income tax law that can impact your business in 2009.
This is not a comprehensive list, so be sure to talk to your tax advisor if you have questions about how your small business is affected. You can also refer to several informative online resources including the 2009 Small Business Tax Center on Business.gov or the IRS’s Small Business and Self-Employed Tax Center.
2009 Tax Law Changes that Impact Small Business
Major changes include:
- Commuting and Parking Benefits for Employees – Starting in 2009, businesses can pay $230 a month in tax-free parking for employees, up $10 per month from 2008. The cap on tax-free transit passes rises to $120 a month, up $5 a month from 2008. In addition, you can offer employees who prefer to cycle to work a new tax-free benefit of $20 per month to cover the cost of buying, maintaining, and storing a bicycle for commuting purposes.
- Expensing Business Equipment – What business expense write offs can you plan on this year? The maximum amount of equipment placed in service in 2009 that businesses can expense (section 179 Expense Deduction) falls to $133,000, a $117,000 decrease from 2008, when a temporary $250,000 ceiling was in effect. The annual investment limit drops to $530,000 for 2009. In 2008, the limit had been temporarily increased to $800,000. Keep your ears to the ground on this one, however, as the government may extend the 2008 tax breaks for 2009.
- First-Time Buyers with Home-Based Businesses – If you operate your small business from an office situated within a first-time home purchase, you can still qualify for additional tax incentives – if you purchased your home between April 2, 2008 and June 30, 2009.
- Lower Mileage Rates – As expected, the IRS lowered the standard mileage rates for the business use of vehicles. Beginning on Jan. 1, 2009, the standard mileage rate for the use of a car (also vans, pickups or panel trucks) is:
- 55 cents per mile for business miles driven
- 24 cents per mile driven for medical or moving purposes
- 14 cents per mile driven in service of charitable organizations
- Payroll Tax Changes – The maximum amount of wages subject to Social Security tax has increased to $106,800 for 2009, up from $102,000 in 2008. That means you should stop making (and paying) Social Security for employees once they reach $106,801 in eligible earnings in 2009. The tax rate remains 7.65 percent on employers and employees.
- Maximize Your Retirement Contributions – In 2009, small business owners have the opportunity to invest more tax-deductible money in their retirement savings accounts. These include:
- 401(k) elective deferrals up to $16,500 (plus another $5,500 for those age 50 or older by the end of 2009); the limits had been $15,500 (plus another $5,000 for those age 50 or older by the end of 2008).
- SEP and profit-sharing plan limit of $49,000 (up from $46,000 in 2008).
- Defined benefit (pension plan) limit of $195,000 (up from $185,000 in 2008).
- Increased Deductions for Health Savings Accounts (HSAs) – You can contribute more in 2009 to business HSAs, with a 100% tax deduction up to a limit of $5,950 for a family, and $3,000 for an individual.
- Bonus First-year Depreciation Ends – Businesses can no longer claim 50 percent bonus first-year depreciation on assets placed in service in 2009.This was a special write-off that was put in place for the 2008 tax year.
- Depreciation of Restaurants and Retail Stores – The current 15-year depreciation period for tenant and restaurant improvements is expanded to include buildings housing restaurants, and improvements made to retail stores that are placed in service in 2009.