What You Need to Know About Tax Breaks for 2009

Barbara Weltman

It's a new year, with new federal income tax rules that can impact your business. Understand now what they are so you can take advantage of them before it's too late.

New fringe benefit
You can offer employees a new tax-free benefit this year for bicycle commuting. The limit is $20 per month to cover the cost of buying, maintaining, and storing a bicycle used to get to and from work. While this may not seem like a big break, it can be helpful to (and appreciated by) employees who commute by bicycle.

Uncertainty about expensing
If you buy machinery or equipment for your business this year, what kind of write-off will you enjoy ? The answer isn't clear.

The increased first-year expensing (Sec. 179 deduction) of $250,000 and 50% bonus depreciation expired at the end of 2008. Set to apply for 2009 is a first-year expensing limit of $133,000 (which applies in full for profitable businesses that do not buy more than $530,000 of equipment during the year); there is no bonus depreciation. However, the new Congress may extend the 2008 tax breaks for 2009, so stay tuned.

Higher retirement plan limits
The opportunity to stash more in retirement plans is made possible by higher contribution limits for 2009. 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).

Many business owners and employees are feeling reluctant to continue or increase contributions because of the dismal stock market performance. However, it is worth remembering that contributions invested now at "bargain basement" prices may yield high returns when the market improves. Of course, there are no guarantees, but contributions for the faint of heart can be parked in cash-like investments (e.g., money market funds) until confidence in the market returns.

Higher HSA limits
Businesses that have health savings accounts (HSAs) can contribute more this year. The limits are up to $3,000 for those with high deductible health plans (insurance with a minimum deductible of $1,150) covering individuals and up to $5,950 for those with high deductible health plans (insurance with a minimum deductible of $2,300) covering families. Another $1,000 can be added for those who will be at least 55 years old by the end of 2009.

Breaks set to expire at year end
There are a number of business-related tax breaks that expire on December 31, 2009, unless Congress extends them. You may wish to act now and not wait for any extension (which may or may not come). These include:

  • 15-year amortization for qualified leashold and restaurant improvements - improvements made now will be written off over 15 years rather than depreciated over 39 yeasr. This break applies to both owner-occupied businesses and leased establishments.
  • Research credit - a basic credit of 20% for increasing eligible research expenditures or a 14% alternative simplified credit. While there have been calls over the years for making this credit permanent, it has yet to happen.
  • Charitable contributions - enhanced deductions for certain types of donations, including contributions of food and book inventory to certain recipients.
  • New markets credit - an incentive to invest in small businesses in economically-distressed areas.

Bottom line
Discuss these and other tax breaks with your accountant or other financial advisor as early in the year as you can to maximize your strategies. Be sure to factor in any relevant state income tax changes and other tax changes (e.g., the increased wage base for Social Security taxes, which is $106,800 in 2009 compared with $102,000 in 2008).

Barbara Weltman, author of several books including her most recent, 1001 Deductions & Tax Breaks 2009
Copyright 2009. All Rights Reserved.

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