Recent Changes Open the Door for Businesses;

Section 179 Extension Deduction, Hiring Credit, and R&D Credit

Expanded Section 179 break lives on

If you’ve discussed year end tax planning with your CPA, you may have heard about the Section 179 expensing deduction. It allows you to expense (rather than depreciate) the cost of depreciable assets (within certain limits) in the year you place them in service.

After 2007, the deduction was due to dwindle down to a relatively small $25,000 limit with a phase out if total new additions exceeded $200,000. But this provision is indeed a survivor, as Congress has extended the higher limits each time they’ve been set to expire.

The most recent extension gives you three more years (through 2010) to determine which assets you may need to buy so you can make the most of these significant, necessary purchases. SBWOTA also increases what was a $100,000 maximum deductible amount to $125,000, effective for years beginning after 2006. The expense deduction begins to phase out if more than $500,000 of eligible property is placed in service during the year (up from $400,000). These amounts will continue to be adjusted for inflation annually.

Of course, you generally shouldn’t buy a major asset only for tax-saving purposes. But if you need one or more large-ticket items anyway, why not get them while the getting is good?

Hiring credit here longer

Congress has done much in recent years to extend and enhance tax credits for businesses that employ workers from certain economically disadvantaged groups, such as; veterans, ex-felons, high-risk youth, and food stamp and supplemental security income recipients.

TRHCA, for instance, extended the previously expired Welfare-to-Work and Work Opportunity credits through 2006 and then combined and enhanced them for 2007. Now, under SBWOTA, the Work Opportunity credit, which had been set to expire Dec. 31, 2007, is extended until Sept. 30, 2011.

The new law also expands the list of qualifying employees to include disabled veterans as well as individuals in counties that have suffered significant population losses. If you hire a targeted employee, your business can receive a 40% tax credit for the first $6,000 paid to that worker.

Help is available

These are but a few of the tax law changes that could help your company better manage its tax liability this year. Other recent developments to look into include updates to the manufacturers’ deduction, changes to Health Savings Accounts, revisions to the 15-year depreciation for certain leasehold improvements, and the availability of certain energy tax breaks.

Of course, your CPA can keep you up to date on additional tax law changes as they occur and help you pick out which tax-saving opportunities suit your business.

Reading up on the R&D credit

Has your company engaged in any research and development over the past year? If so, consider reading up on the research and development (R&D) credit, which was extended through 2007 and revised by the Tax Relief and Health Care Act of 2006 (TRHCA).

Generally, the R&D credit is equal to 20% of qualified research expenses in excess of a certain amount based on the company’s historical activity. But businesses can instead take the alternative incremental credit (AIC), based on a stated percentage of qualified expenses in excess of average expenses over four years.

TRHCA enhances the R&D credit in two ways. First, it increases the stated percentage for the AIC. Second, it offers the alternative simplified credit (ASC), equal to 12% of qualified research expenses exceeding 50% of the previous three tax years’ average expenses. If there were no qualified expenses in any of those years, the ASC equals 6% of the current year’s expenses.

Find out how our Boston accounting services can add value to your business. Email us or call us at 1 (888) 875-9770.

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