New Tax Rules to Know for This Year and Next

By Barbara Weltman November 14, 2008

The $700 billion bailout package, which became law on October 3, 2008, contains numerous tax breaks for businesses--this year and next.

The stock market's rollercoaster performance has diverted all eyes to Wall Street. But Main Street businesses should be focused on actions that directly impact them, such as new tax law changes. Here is a roundup of key provisions from the Emergency Economic Stabilization Act of 2008 that can benefit small businesses. Owners are advised to discuss these matters with their tax advisors so that appropriate action can be taken.

Research tax credit
According to the Office of Advocacy of the Small Business Administration, small businesses produce 13 times more patents per employee than large patenting firms. Tax incentives are an aid to R&D. The federal research credit, which is generally 20% of increased research expenses, had expired at the end of 2007. It has now been extended for 2008 and 2009.

Credit changes. In 2007, there had been two other ways to figure the research credit (besides the 20% computation): an alternative incremental research credit and an alternative simplified credit; the alternative simplified credit first came into play in 2006. For 2008 and 2009, the credit has been modified in two important ways:

• The alternative incremental research credit has been repealed.
• The alternative simplified credit has been increased to 14% of qualified research expenses that exceed 50% of the average qualified research expenses for the three preceding years (previously it was 12%).

Amortization of leasehold and restaurant improvements
Usually, capital improvements to commercial realty are depreciated over 39 years. However, qualified leasehold and restaurant improvements in 2008 and 2009 can be amortized (deducted ratably) over 15 years. Qualified improvements are those made to the interior space of a commercial building by a lessee, sublessee, or lessor more than three years after the building itself was placed in service.

This 15-year amortization rule was introduced into the tax law after October 22, 2004, and had been extended through 2007. In light of the additional two-year extension, now may be a good time to plan for improvements to your space.

Commuting by bicycle
Currently, employers can provide a tax-free fringe benefit to employees for monthly transit passes ($115 per month in 2008). Starting in 2009, employers can provide a tax-free fringe benefit to employees who bicycle to work. The limit on this fringe benefit is $20 per month for each employee; the cost covers the expenses of buying, repairing, and storing a bicycle.

Energy tax credits
To encourage the use of alternative energy, the tax law has several new or extended tax credits to help defray the cost of investments in this area. Using solar, wind, and other alternative natural resources may make sense as long-term investments for business.

Barbara Weltman, author of several books including her most recent, 1001 Deductions & Tax Breaks 2008
Copyright 2008

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