Summary of Business Tax Law Changes 2008 - 2017
Learn how federal tax law changes could impact your small business returns this year, and in the future.Many of the tax breaks in recent tax-relief bills are designed to be phased in over a number of years. To help you determine how these tax laws affect your long-term plans, we'll explain the changes that come into effect through 2017.
Select a year to see what tax changes will affect that year's returns. We include changes that went into effect in 2008 because they affect returns filed in the spring of 2009.
Starting in 2008
Increased Section 179 Expense Deduction
The maximum amount of equipment placed in service in 2008 that businesses can expense increases to $250,000. (Expensing lets a business deduct right away costs that would otherwise be depreciated and gradually deducted over several years.) This is a $122,000 increase over the limit that was supposed to apply for 2008. Congress mandated the increase in an attempt to help the economy by stimulating investments by businesses. The annual investment limit increases to $800,000 for 2008, up from $510,000 the year before. Thus, you won't lose the benefit of expensing until you place more than $800,000 of assets in service in 2008.
Bonus First-Year Depreciation
Businesses can take a 50 percent bonus first-year depreciation on new assets put in use in 2008. In other words, they can write off one-half of the asset costs up front. The balance of the cost is recovered by depreciation. Smaller firms can first claim expensing and then use the 50 percent bonus. If used assets are bought, no 50 percent write-off is allowed. Assets depreciated over 20 years or less are eligible, including machinery, equipment, land improvements and farm buildings, even leasehold improvements made to the interior of commercial realty. But this special write-off is not available for other buildings. Autos and light trucks also benefit if they are used for business. The maximum first-year write-off for them is increased to $10,960. However, this is only for vehicles that are put in service during 2008.
Self-Employment Tax Contribution Base Increased
The maximum amount of self-employment income subject to Social Security taxes increases from $97,500 to $102,000. The self-employment tax rate remains 15.3 percent.
Self-Employment Tax Relief for Some Farmers
Beginning in 2008, retired or disabled farmers will not owe self-employment tax on conservation reserve payments.
Social Security Tax Contribution Base Increased
The maximum amount of wages subject to Social Security tax increases from $97,500 to $102,000. The tax rate remains 7.65 percent on employers and employees.
Business Standard Mileage Rate Increased
For miles driven for business in the first six months of 2008, the standard business mileage rate increased to 50.5 cents per mile from 48.5 cents per mile. For business driving in the final six months of the year, the standard business mileage rate increased to 58.5 cents per mile to reflect the increased cost of gasoline. Remember that you can deduct the cost of parking and tolls in addition to the mileage allowance.
Tax-Free Parking for Employees
Starting in 2008, firms can pay for $220 per month of parking tax-free for employees, up $5 per month from 2007. The cap on tax-free transit passes rises to $115 a month for 2008, up from $110 in 2007.
Capital Gains on Timber Sales
For 2008 and 2009, capital gains corporations receive for selling trees owned for more than 15 years will be taxed at no more than 15 percent for regular tax purposes and the Alternative Minimum Tax.
Carrybacks of Net Operating Losses
Businesses with average annual gross receipts for 2006 - 2008 can carry back net operating losses from the 2008 tax year for a maximum of five tax years. The carryback period is usually two years.
Starting in 2009
Payroll Tax Credit
For 2009 and 2010, Congress gave workers a credit of 6.2 percent of their earned income, capped at $400 for single filers and $800 for joint filers. For single filers, it starts phasing out at $75,000 of Adjusted Gross Income and dries up at $95,000. The phaseout zone for couples is $150,000 - $190,000. While employees get the credit in advance via lower income tax withholding in each paycheck, self-employeds can reduce their quarterly estimated payments to get an advance benefit from the credit. The exact amount of the payroll tax credit for the year will be calculated on the filers’ tax returns
Self-Employment Tax Contribution Base Increased
The maximum amount of self-employment income subject to Social Security taxes increases to $106,800 in 2009, up from $102,000 in 2008. The self-employment tax rate remains 15.3 percent.
Social Security Tax Contribution Base Increased
The maximum amount of wages subject to Social Security tax increases from $97,500 to $102,000. The tax rate remains 7.65 percent on employers and employees.
Business Standard Mileage Rate Drops
The standard business mileage rate is 55 cents per mile, down 3.5 cents per mile from the allowance that applied for business driving in the last six months of 2008. Remember that you can deduct the cost of parking and tolls in addition to the mileage allowance.
Tax-Free Parking for Employees
Starting in 2009, firms can pay for $230 a month of parking tax-free for employees, up $10 per month from 2008. The cap on tax-free transit passes is now $230 a month as well, the same as for parking. The limit had been $115 a month in 2008.
Section 179 Expense Deduction
The maximum amount of equipment placed in service in 2009 that businesses can expense stays at $250,000. And the annual investment limit remains $800,000. Thus, you won't begin to lose the benefit of expensing until you place more than $800,000 of assets in service in 2009.
Bonus First-Year Depreciation
Businesses can continue to claim 50 percent bonus first-year depreciation on assets placed in service in 2009.
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.
Faster Depreciation of Farming Assets
New farm machinery and equipment put in use in 2009 can be depreciated as five-year property instead of seven-year property. This doesn’t apply to grain bins, cotton ginning assets or land improvements such as fences.
Estimated Tax Relief for Owners of Small Businesses
If an individual’s Adjusted Gross Income for 2008 was less than $500,000, and more than half of gross income was from a business with fewer than 500 workers, the owner’s estimated income taxes for 2009 estimated payments can be based on the lesser of 90 percent of tax liability for 2008 or 2009. The usual estimated tax benchmarks of 100 percent or 110 percent of tax liability do not apply.
Wind Energy Credit
The $4,000 annual ceiling on a business tax credit for wind energy turbines is repealed after 2008. The credit is for 30 percent of the cost of wind energy turbines of 100 kilowatts or less.
Starting in 2010
Lower Section 179 Expense Deduction
The maximum amount of equipment placed in service in 2010 that businesses can expense will fall to around $135,000—a $115,000 decrease from 2009 when a temporary $250,000 ceiling was in effect. The annual investment limit will drop to around $535,000 for 2010. (The IRS will announce the exact amounts for 2010 in late 2009.) In 2009, the limit had been temporarily increased to $800,000. Thus, you won't begin to lose the benefit of expensing until you place more than $535,000 of assets in service in 2010.
Bonus First-Year Depreciation
Businesses can no longer claim 50 percent bonus first-year depreciation on assets placed in service in 2010.
Domestic Production Activities Deduction
Starting in 2010, this deduction increases to 9 percent of qualifying business net income from domestic production activities. This deduction applies to businesses engaged in construction, engineering or architectural services; film production; or the lease, rental or sale of equipment manufactured in the United States. However, the rate remains 6 percent for oil and gas companies.
The R & D Tax Credit
The credit for increasing spending on research and development is set to expire after 2009. We expect Congress will ensure that this popular tax credit remains on the books.
Depreciation of Restaurants and Retail Stores
The shorter 15-year depreciation period for tenant, restaurant and retail store improvements and buildings housing restaurants no longer applies after 2009.
Tax Credit for Energy-Efficient Homes
The special tax credit for builders selling energy-efficient homes expires after 2009.
Capital Gains on Timber Sales
After 2009, capital gains corporations receive for selling trees owned for more than 15 years will be taxed as regular income. The special rate of no more than 15 percent no longer applies.
Limits on Deducting Farm Losses
Beginning in 2010, the amount of farm losses you can enter to offset nonfarm income is capped at the greater of $300,000 or your net farm income over the past five years. But this limit will apply only if you get federal farm payments or Commodity Credit Corporation (CCC) loans. You can take suspended losses in later years. The caps will also apply to partners and S firm owners.
Starting in 2011
Payroll Tax Credit
The credit of 6.2 percent of earned income, capped at $400 for single filers and $800 for joint filers, no longer applies.
Decreased Section 179 Expense Deduction
The maximum amount of newly-purchased assets that a business is allowed to expense decreases to $25,000. The annual investment limit drops to $100,000.
Starting in 2012
Withholding on Government Contracts
Starting in 2012, amounts paid out under government contracts will be subject to 3 percent tax withholding. This will affect contracts with the federal government, state governments and any municipality that pays out $100 million or more on contracts a year. Interest and payments for real estate are exempted.
Starting in 2014
Energy-saving Improvements to Commercial Real Estate
The special expensing allowed for the cost of energy-saving improvements to commercial buildings is not available after 2013.
Starting in 2017
Solar Heating Credit
The 30 percent tax credit for businesses on the cost of solar heating units and fuel cells falls to 10 percent for those that are placed in service after 2016.
Updated for tax years 2008 and 2009
