Tax-law changes in 2008 that can help you now
With the season for filing 2008 tax returns well under way, all veterinarians, regardless of whether they use professional tax assistance, should be aware of many changes in the laws that will affect their tax bill for 2008 and for years to come. Here's a capsule look at key measures Congress passed in 2008 that affect practices and other businesses:
Early in the year, the Economic Stimulus Act of 2008 was signed into law. While it was most notable for rebates mailed to individuals and couples, the law also included $44.8 billion in business incentives.
If your practice acquired new equipment, the law almost doubles the Section 179, first-year write-off for new equipment placed in service to a maximum of $250,000 — but only for 2008. It can be treated as a business expense and fully deducted on 2008 returns.If new equipment costs exceeded $800,000 for 2008, the $250,000 Section 179 write-off must be reduced, dollar-for-dollar, for the excess above the $800,000 ceiling.
Another provision in the stimulus package allows practices to claim a 50 percent bonus depreciation allowance for new equipment. To qualify, the equipment must be eligible for depreciation and have a useful life of more than 20 years. Off-the-shelf computer software and improvements made to leased practice property also qualify for bonus depreciation. The bonus applies in both the 2008 and the 2009 tax years.
The bailout bill
Last fall, the Emergency Economic Stabilization Act of 2008 was passed and signed into law. Its main purpose was to solve the credit crunch in the financial markets, but it also became one of the largest tax bills in recent years.
It included almost 300 changes in laws that aim to save taxpayers $150 billion.
One of them noteworthy for veterinary practices and other small businesses raises the FDIC and National Credit Union Share Insurance Fund deposit insurance limit from $100,000 per account to $250,000. But those increased levels are only temporary, expiring after 2009.
Fewer need dread the AMT
The bill boosted the Alternative Minimum Tax (AMT) exemption for individuals and allowed, at least for 2008, personal nonrefundable credits to offset AMT and regular tax. The bill increased the income threshold where people begin to feel the effects of the AMT.
Although originally designed to prevent the wealthy from avoiding taxes, because it was not indexed for inflation the AMT has affected an increasing number of middle-class taxpayers. Each year, Congress passed a series of "patches" to boost the threshold. The patch included in the new law raised the AMT exemption amounts for 2008 to $69,950 for married couples filing jointly and to $46,200 for single taxpayers. Total savings to taxpayers will be almost $62 billion.
Earlier tax-law changes shortened the cost recovery period for improvements to leased practice property from 39 to 15 years. The new law not only extends the faster write-offs for "leasehold improvements" until the end of 2009, it allows retailers and restaurants to benefit from similar shortened recovery periods.
That means that veterinary practices will share in tax savings estimated to reach $8.7 billion over 10 years. The shorter, 15-year write-off period for more permanent types of improvements is good only for the 2009 tax year, however. On the other hand, the restaurant and retail property write-offs apply to improvements of owner-occupied businesses as well as leased establishments.