What About the Tax Payers? How the bailout bill helps businesses

The business tax incentives in the Emergency Economic Stabilization Act of 2008 cover a wide range of activities and industries.  Here are some of the key measures you might find beneficial.

Research Tax Credit. The rescue package extends the research tax credit to amounts paid or incurred in 2008 and 2009. It also increases the alternative simplified research credit to 14 percent starting next year a tremendous incentive now for smaller firms to finally use the research credit to grow their businesses.

Leasehold improvements. Many businesses remodel or otherwise make improvements to their facilities on a regular schedule. Under the new law qualifying restaurant improvements and leasehold improvements will be eligible for 15-year cost recovery rather than a 39-year period for two more years through December 31 2009. Similarly Congress authorized a 15-year recovery period for depreciation of certain improvements to retail space. This treatment is extended through December 31 2009. It applies to owner-occupied businesses and restaurants and leased establishments.

Energy conservation. The new law extends a host of energy tax incentives some targeted to consumers (including businesses) and others to producers and manufacturers. Many of the extensions go beyond the one or two year periods that Congress authorized for non-energy extenders. Most notable are the extension of the special deduction for energy efficient commercial buildings through December 31 2013; and the substantial long-term tax breaks given to businesses that develop or use solar energy. For businesses in urban areas a $20/month transportation fringe benefit may be set up for employees who bicycle to work.

Charitable contributions. The Tax Code gives businesses enhanced deductions for contributions of food to charitable organizations as well as contributions of books and computer equipment to qualifying schools. The new law extends these tax breaks through December 31 2009. Additionally Congress extended the temporary suspension of limitations on charitable contributions in the case of a qualified farmer or rancher contributing food before January 1 2009.

S corporation shareholders are also eligible for special tax treatment when making charitable contributions of qualifying property. The new law extends through December 312009 the special rule allowing S-corp shareholders to take into account their pro-rata share of charitable deductions even if those deductions would exceed the shareholder’s adjusted basis in the corporation.

New Markets Tax Credit. The new law extends the New Markets Tax Credit through December 31 2009. The New Markets Tax Credit is one of the few incentives in the Tax Code to encourage taxpayers to invest in or make loans to small businesses in economically distressed areas. In today’s credit crunch extension of the New Markets Tax Credit may help small businesses secure financing that otherwise would not be available.

Disaster relief. The new law provides temporary but significant tax relief to victims of the recent severe storms tornadoes and flooding that hit the Midwest and to a lesser extent victims of Hurricane Ike in Texas. Additionally Congress authorized national relief for locations declared disaster areas in tax years beginning after December 31 2007.

Other business extenders. The rescue package also targets a whole host of extended enhanced and expanded tax breaks to certain specific businesses including farming film and television production and related controlled foreign corporations (CFCs).

Some of these breaks require quick action before the 2008 tax year ends; others call for careful coordination with standard year-end tax strategies; and still others require planning now to maximize the benefits available in 2009 and beyond. Contact your accountant to how these incentives might benefit you.