Tax Tips For Businesses
Many new tax breaks for real estate were slipped into recently enacted legislation providing relief from the current mortgage crisis. Lawmakers approved tax cuts worth $12.4 billion over 10 years, as well as tax increases to offset them.
Depreciation
Buyers of new heavy SUVs get showered with tax breaks this year. Special 50% bonus depreciation is the reason.
Here's an example:
Your firm buys a new $50,000 SUV with a loaded weight over 6,000 pounds and places it into service in 2008. The business can expense $25,000 of the cost. One-half of the remaining $25,000 cost, $12,500, is claimed as bonus depreciation. And 20% of the $12,500 balance of the cost can be deducted as regular depreciation. Assuming the SUV is used 100% for business, a total of $40,000 can be written off in year one...80% of the total cost. You can't take this break on used heavy SUVs.
There's a move in Congress to rein in the largesse. The House OK'd a bill that would restrict the total write-off in the first year for heavy SUVs to $11,260 for vehicles that are placed into service after the measure is signed into law. But passage isn't guaranteed. The Senate is still balking at the provision.
Payroll Taxes
A big win for IRS on payroll tax exemptions for severance pay:
Nearly all such payments are hit with FICA and Medicare taxes, an Appeals Court says. It reverses a lower court case that allowed a company to avoid payroll taxes on buyouts of employees who were let go involuntarily. For payroll tax purposes, payments to those workers are treated the same way as buyouts of employees who voluntarily left... taxes are due (CSX, Fed. Cir.).
There is an exception for supplemental unemployment benefit plans. Plan payments made to furloughed workers remain exempt from payroll taxes if they are tied to state unemployment benefits that are paid to laid-off employees.
Special withholding rules apply to severance pay. the Service says. Such compensation is treated as supplemental wages, so employers get a choice:
They can withhold a flat 25% of each payment or they can aggregate severance pay with any regular wages and compute withholding on the total (Rev. Rul. 2008-29).
Business Taxes
With airlines reinstating the Saturday night stayover rule for cheap fares... Remember that an extra day tacked onto a' business trip can be deductible if the total cost of the trip is lower as a result. This is so even if the additional day is used for sightseeing, shopping and the like. The extra meal and lodging expenses for the nonbusiness day must be less than the cost of flying without a Saturday stay. Reimbursement of the extra day's food and lodging is also tax free to employees.
Enforcement
The IRS is on the warpath against firms that misclassify workers. It has new weapons for tracking down "firms that violate the rules used to determine whether workers really are employees or independent contractors."
The result:
An increase in audits in a few months after IRS generates more leads. Take a look at what the Revenue Service now has in its arsenal:
More help from the states. The IRS has signed up most of the states to share payroll tax exam data. Thousands more audit referrals will result.
Revved up document matching programs to pinpoint audit leads and lessen chances for no-change examinations. An electronic matching system, for example, enables the IRS to spot businesses issuing 1099 forms with payments of $25,000 or more to at least five workers who have no other sources of income.
And audit leads from workers. Taxpayers can now file Form 8919 along with their tax returns to tell the Service that they believe their employer incorrectly pegged them as contractors. A Hood of these forms is likely to come because filing the 8919 allows an individual to avoid paying self-employment tax.
Home builders will get special audit attention from the Service. Agents will be on the lookout for inappropriate income deferrals by builders that use the completed-contract method of accounting.
Among their targets:
Developers who sell lots but don't report income until the common improvements are finished. And those who use a subsidiary to build all the houses in a project so the company can say that the contract isn't complete until all homes are built. Otherwise, the home builder would owe taxes after each house was completed.