Each year, the IRS makes changes to it’s tax code. Here is a high level account of the changes to the IRS tax code for businesses.   I will try to capsulize the changes for each category. It is recommended that you talk to your tax adviser about the specifics if any of the following apply to you:

Depreciation and Section 179 Deduction
In 2008 you will be able to deduct the full purchase price (100%) of “qualifying equipment” that you purchased in 2008, but you must have purchased int the same year.

The limitations are that the maximum write-off is capped at $250,000.
And there is a cap of $800,000 for the total amount of the equipment purchased.  But if you’re purchases are over $250,000, you can get a “bonus” write-off in the same year equal to 50% of the balance leftover.  You can then write off the balance over 5 years (up to $800,000)
<a href=”http://truetaxfacts.com/2008-section-179-tax-changes-business-vehicles” target=”_blank”>Here is more information on this change</a>.

Meal Expenses When Subject to “Hours of Service” Limits
In general, you can deduct only 50% of your business-related meal expenses. However, for 2008 and later years, you can deduct 80% of meal expenses while traveling away from your tax home for business purposes if the meals take place during or incident to any period subject to the Department of Transportation’s “hours of service” limits.

The “hours of service” rule are set forth by the US Department of Transportation’s division of Federal Motor Carrier Safety Administration (FMCSA) governing the working hours of anyone operating a commercial motor vehicle (CMV). This includes truck drivers and bus drivers.

Self-Employment Tax
Beginning in 2008, $102,000 is the maximum amount of net earnings
There is no limit on the the amount of wages subject to the Medicare tax.

Social Security and Medicare Taxes
As stated above, the maximum amount of wages subject to the social security tax for 2008 is $102,000. There is no limit on the amount of wages subject to the Medicare tax.

Federal Unemployment Tax Act (FUTA) Tax Rate
The government has decided to keep the FUTA tax rate at the current 6.2% in 2008. It was scheduled to decrease two percentage points to 6.0% after 2007.

Maximum Automobile Value for Using the Cents-Per-Mile Valuation Rule
For employers who provide a auto, for the first time, for the personal use by an employee, the value of that personal use can be determined using the “cents-per-mile rule”. IF the fair market value of that vehicle is less than $15,000 for a car and $15,900 for a truck or van.

For more information, see Cents-Per-Mile Rule on page 20 of Publication 15-B, Employer’s Tax Guide to Fringe Benefits.

Fringe Benefit Parking Exclusion and Commuter Transportation Benefit
Employers can exclude some of the value of parking, highway credits and transits passes it provides to employees, from employees wages.

For 2008, the monthly exclusion for qualified parking increases to $220 and the monthly exclusion for commuter highway vehicle transportation and transit passes increases to $115.

Health Savings Accounts
Eligibility. For 2008, a qualifying high deductible health plan (HDHP) must have a deductible of at least:

• $1,100 for self-only coverage or
• $2,200 for family coverage and
• must limit annual out-of-pocket expenses of the beneficiary to $5,600 for self-only coverage and
• $11,200 for family coverage.

Employer contributions. Up to specified dollar limits, you can generally exclude your contributions (must be in cash) to the health savings account (HSA) of a qualified individual (determined monthly) from federal income tax withholding, social security tax, Medicare tax, and FUTA tax. For 2008, you can contribute up to the following amounts to a qualified individual’s HSA.

• $2,900 for self-only coverage or $5,800 for family coverage.
• $3,800 for self-only coverage or $6,700 for family coverage for qualified individuals who are age 55 or older at any time during the year.

Nonqualified Deferred Compensation Plans
This topic is tricky and complicated. But in general terms, in 2008, final regulations are replacing many of the portions of the regulations regarding deferred compensations plans.   If you think you may be affected, contact your tax professional.

Penalty for Late Filing of a Partnership Return
Starting this year, the penalty for filing late as a “partnership” is increased to $86 for each month or part of a month (up to 12 months) the return is late or does not contain the required information, multiplied by the total number of persons who were partners in the partnership during any part of the partnership’s tax year for which the return is due.

Expiring Tax Benefits
Each year, certain provisions and tax benefits expire from the IRS Tax Code. However, Congress was expected to consider legislation that would reinstate many of these benefits. Go to www.irs.gov and click on “What’s Hot” in forms and publications for more information or talk to your tax adviser.

Researching tax changes can be extremely boring, but it is essential that you understand how the changes affect your tax situation.  Even if you have a qualified tax consultant do your taxes, it is a good idea to at least get an idea of what it is all about.

Trying to understand the IRS tax rules and regulations is very difficult. Some are even up for interpretation. Just because someone is a CPA or does tax preparations, it does not mean they are up to speed on the tax changes made by the IRS.

For 2008, there are over 11 categorical tax changes for businesses. Below we will discuss just one of those.  If you are a business owner and buy vehicles or equipment you may be able to take advance of this tax change. It is called the Section 170 Deduction.

First we need to understand what the Section 179 Deduction Is
The Section 179 Deduction of the IRS code allows business to deduct the FULL purchase price of equipment (qualifying) that you either purchases or financed, during that tax year.

The idea behind this deduction is to promote businesses by investing in themselves by buying equipment.

The full purchase price of “qualifying equipment” can be deducted from your gross income.  Some folks call it the “Hummer or SUV Tax Loophole”

Here is an example of how it works:
Let’s say you buy a $50,000 vehicle for your business. In the past, it would usually be written off over a period of say, five years. So if it cost you $50,000. You could write off $10,000 over the five year period.

But now under the tax change, you can write off the full purchase price in the year you purchase it, up to $250,000.  However, there is a cap of $800,000 for the total amount of the equipment purchased.  After that, the deduction phases out dollar for dollar.

“But that’s not all…”

Businesses that exceed the $250k deduction can take a bonus depreciation of 50% on the amount that exceeds the limit. And then also take normal depreciation on the rest.

Do You Qualify for Section 179?
All businesses that purchase or finance less than $800,000 in business equipment should qualify for the Section 179 Deduction. In addition, most tangible goods qualify for the Section 179 Deduction. But remember, the purchases had to be made in 2008 (Jan 1 - Dec 31).

Here is a better example:

Let’s say that on March 1, 2008, you bought “qualifying equipment” with a total purchase price of $500,000.

The 1st Year Write Off is $250,000
The Bonus First Year Depreciation is $125,000 ($500,000 - $250,000 = $250,000,  50% of $250,000 = $125,000)
Then the balance is depreciated over 5 years.  So $125,000/5 years = $25,000. And you can take $25,000 additional deduction in 2008 for the first year depreciation.

The tax savings is $250,000 (1st year write off) + $125,000 (1st year bonus @ 50% of balance) + $25,000 (1st year depreciation) = $400,000 Total First Year deduction.

Understand, that your tax rate is then applied to come up with the actual savings.

Hope you got all that!