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Minimum Wage Increase
The Emergency Stimulus Act of 2008
The Bailout Bill
Credit Card Act of 2009
2009 Mileage Rates for Tax Purposes
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Minimum Wage Increase
The minimum wage for Maryland, Pennsylvania and several surrounding states will increase on July 24, 2009. It will increase its current level of $6.55 per hour to $7.25 per hour.
As a result of this change, employers in some states will need to increase the minimum wage they pay employees. In addition, several states have increased their state minimum wage rates by statute. By law, where covered under the Fair Labor Standards Act (FLSA) and relevant state law, an employer must pay its employees the higher of the federal or state minimum.
If you have additional questions or concerns please do not hesitate to contact our office to speak with one of our qualified accountants.
Minimum Wage Rate for Tipped Employees
As of July 24, 2009 the tipped minimum wage rate will increase to $3.625 per hour for all Maryland employees. The tip credit amount that an employer may not exceed is 50 percent of the minimum wage amount.
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Emergency Economic Stabilization Act of 2008,
was first signed into law on October 3, 2008, includes a wide variety of federal tax changes that affect businesses.
Most of them are favorable to taxpayers and many of them only apply to certain industries.
Here is a quick rundown of some of the changes and the type of businesses that are likely to benefit or be hurt:
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Business/ Industry
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Tax Change
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Details
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All qualifying businesses
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The Research Credit is extended and modified.
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The valuable credit for businesses that invest in the development of new products and technologies had expired at the end of 2007. The new law extends the credit to amounts paid or incurred through 12/31/09.
Modifications: The election to claim the alternative incremental research credit is repealed for tax years beginning after 2008. And the alternative simplified research credit rate is increased to 14 percent (from 12 percent) for tax years ending after 2008. Conforming changes are also made to the orphan drug credit.
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Restaurants and businesses that lease property
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The 15-Year depreciation tax break for restaurants and leasehold improvements is extended.
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The new law extends favorable 15-year straight-line depreciation for qualified leasehold improvements and qualified restaurant building improvements for two years, to cover property placed in service in 2008 and 2009. In addition, eligibility for 15-year depreciation is expanded to cover qualified restaurant buildings themselves (as well as building improvements). This change applies to buildings place in service in 2009.
Advisory: Without the 15-year rule, leasehold improvements, restaurant building improvements, and restaurant buildings generally must be depreciated over 39 years using the straight-line method.
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Retailers
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A new 15-year depreciation tax break for retail space improvements.
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A provision in the law allows 15-year straight-line depreciation for qualified retail improvement property placed in service in 2009. It covers real property improvements to the interior of a nonresidential building if:
1. The portion is open to the public and used in a retail business selling tangible personal property to the public and
2. The improvement is placed in service more than three years after the building was put in use. However, 15-year depreciation is not available for improvements related to:
- A building enlargement,
- Elevators or escalators,
- Structural components that benefit common areas, or
- The internal structural framework of the building.
Note: Without the favorable 15-year rule, these improvements generally must be depreciated over 39 years using the straight-line method.
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Non-C corporation businesses
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The enhanced deduction for charitable food donations is extended.
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The enhanced charitable contribution deduction for non-C-corporation businesses that donate wholesome food now covers donations in 2008 and 2009.
Normally, deductions for donated food are limited to the lesser of: the taxpayer's cost basis in the food or the food's fair market value. However, the enhanced deduction amount equals the lesser of:
- Basis plus one-half the value in excess of basis or
- Two times the basis.
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C corporations
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The liberalized deduction for book donations is extended.
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The law extends a liberalized deduction for C corporation donations of books to schools to 2008 and 2009. The liberalized deduction amount equals the lesser of:
- Basis plus one-half the value in excess of basis or
- Two times the basis.
To qualify, book donations must be made to a public school that provides elementary or secondary education.
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C corporations
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The enhanced deduction for donations of computer equipment is extended.
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The law extends the enhanced deduction for C corporation donations of computer equipment and related technology to qualifying educational organizations and public libraries. Donations in 2008 and 2009 are now covered. The enhanced deduction amount equals the lesser of:
- Basis plus one-half the value in excess of basis or
- Two times the basis.
To qualify, items must be donated within three years after the C corporation donor acquired them new or constructed them.
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S corporations
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A special rule to encourage donations of appreciated property is extended.
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A special rule for charitable donations by S corporations is extended to cover taxable years beginning in 2008 and 2009. Under the rule, a shareholder's tax basis in S corporation shares is only reduced by the shareholder's proportionate share of the corporation's tax basis in donated non-cash property. This benefits shareholders because they are left with a higher tax basis in their shares after the corporation donates certain appreciated assets, which have been held for more than one year.
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All qualifying businesses
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First-year expensing of environmental clean-up costs is extended
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As a general rule, environmental clean-up costs are treated as expenses that must be capitalized. However, under an exception that expired at the end of 2007, a company can elect to currently deduct clean-up expenses in areas designated as contaminated sites by state authorities.
The new law extends the provision allowing taxpayers to immediately deduct qualified environmental remediation expenses through 12/31/09.
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Oil, gas, and refining companies
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Various favorable and unfavorable provisions
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Four changes affecting oil, gas and refining businesses are included in the new law. They involve the domestic production deduction, foreign tax credit, enhanced depreciation rules and depletion deductions. Click here for details.
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Farming businesses
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New depreciation tax break and enhanced deduction for charitable contributions.
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The law contains two provisions for farmers: One allows equipment to be depreciated over a shorter period of time and the other provides an enhanced deduction for charitable donations of wholesome food. There are deadlines for both tax breaks. Click here for details.
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Financial institutions
including community banks, savings and loans, business development corporations, banks and savings and loan holding companies and others
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Institutions can treat Fannie Mae and Freddie Mac losses as ordinary losses.
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A new rule mandates ordinary gain/loss treatment for gains or losses recognized when applicable financial institutions sell or exchange applicable preferred stock in Fannie Mae or Freddie Mac that:
- Was held on 9/6/08 or
- Was sold or exchanged between 1/1/08 and 9/6/08.
Without this favorable provision, financial institution losses from selling Fannie Mae and Freddie Mac preferred shares would generally be classified as capital losses and subject to strict limitations on deductibility.
Advisory: The law also gives the IRS authority to extend ordinary gain/loss treatment to other instruments held by financial institutions that don't precisely meet the definition of applicable preferred stock (for example, pass-through trust certificates based on Fannie Mae and Freddie Mac preferred stock).
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Film makers
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Changes that may make the domestic production deduction easier to qualify for.
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For purposes of claiming the domestic production deduction (also called the Section 199 deduction), gross receipts include those from making qualified films.
The law liberalizes the definition of qualified films to encompass copyrights, trademarks, and other film-related intangibles. It also liberalizes the definition of "W-2 wages" used to determine the 50 percent-of-W-2-wages limitation for filmmakers. The expanded definition covers compensation for services in the U.S. by actors, production personnel, directors, and producers -- whether the compensation is in the form of W-2 wages or not. Also, it is now easier to claim domestic production deductions for filmmaking ventures involving partnerships and S corporations. The changes are effective for tax years beginning after 2007.
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Television and film production businesses
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The first-year expensing tax break is extended.
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The law extends the provision allowing immediate deductions of up to $15 million to $20 million (depending on the circumstances) of qualified film and television production costs through 12/31/09. Another change allows the same favorable treatment for productions that cost more than the applicable threshold ($15 to $20 million) beginning in 2008 and 2009. Previously, the first-year expensing break was lost for productions exceeding the threshold.
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Race track facilities
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Depreciation tax break is extended.
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The law extends favorable seven-year depreciation for qualifying property used for land improvements and support facilities at motorsports complexes. The tax break expired on December 31, 2007, but now covers property placed in service in 2008 and 2009.
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The Bailout Bill: Tax Changes Affecting Individuals
The Emergency Economic Stabilization Act of 2008, referred to by some as the "bailout bill," or, as others prefer to call it, the "rescue plan," was recently enacted in an attempt to stabilize the turmoil in the U.S. economy. While a great deal of attention has been focused on the true bailout provisions of the Act, there are also a plethora of tax law changes affecting individual taxpayers. Here are some of the most noteworthy.
Extension of mortgage debt forgiveness
The Act extends for three additional years the exclusion from gross income for discharges of qualified principal residence indebtedness.
The Mortgage Forgiveness Debt Relief Act of 2007 provided an exclusion for the discharge of up to $2 million ($1 million if married filing separately) of Qualified Principal Residence Indebtedness that applies to debts discharged from January 1, 2007 through December 31, 2009. The Act extends the end date to December 31, 2012. The exclusion applies to foreclosures, deed-in-lieu of foreclosures, or any loan modification.
Note: "Qualified Principal Residence Indebtedness" is a debt incurred to acquire, construct, or substantially improve a principal residence.
One-year "patch" for the alternative minimum tax (AMT)
The 2008 AMT exemption amount for individuals is raised to $46,200 for singles, $69,950 for married couples filing jointly, and $34,975 for married couples filing separately. This is a one-year "patch." Absent further legislation, the AMT exemption amounts in 2009 will be $33,750 (single), $45,000 (married filing jointly), and $22,500 (married filing separately).
The Act also modifies the way the AMT refundable credit is calculated, generally making it easier for individuals to utilize any AMT credit that is carried over from prior years.
Additionally, the Act offers specific relief to individuals who were unable to pay AMT liability that resulted from the exercise of incentive stock options (ISOs) in prior years.
Note: AMT exemption amounts are phased out for higher income taxpayers. For married couples filing jointly, phaseout starts when income exceeds $150,000. For unmarried individuals, the phase out threshold is $112,500, and for married individuals filing separately, the threshold is $75,000.
New tax credit for electric vehicles
The Act creates a new tax credit of $2,500 to $7,500 for plug-in electric vehicles. The credit will start to phase out for each manufacturer after 250,000 qualifying electric vehicles are sold. Vehicles that qualify will need to be certified under the Clean Air Act and meet low-emission standards. Higher tax credit amounts are also available for electric vehicles with gross vehicle weight ratings of more than 10,000 pounds.
New tax-free fringe benefit for bicyclists
The Act provides a new tax break for employees who commute by bicycle. Employers can provide a tax-free fringe benefit of up to $20 per month to cover "reasonable expenses incurred by the employee" for the purchase, improvement, repair, and storage of a bicycle that is regularly used to commute between the employee's home and office. This bicycle fringe benefit will begin in 2009.
Extension and modification of energy tax credits
The Act extends and modifies the energy efficient property credit through 2016, and allows the credit to offset AMT liabilities. The Act also removes the $2,000 maximum limit on solar electric property. Two new types of equipment are added that would qualify for the credit: wind energy equipment will produce a tax credit worth 30% of the cost of the equipment, with a maximum credit of $4,000, and geothermal heat pumps would qualify for a credit worth 30% of the cost, with a maximum credit of $2,000.
The nonbusiness energy property credit is extended for property placed in service during 2009. This provides a credit of up to $500 for purchasing energy-saving products, such as windows, insulation, and HVAC systems. The Act also adds two new types of improvements that qualify for the credit: biomass fuel stoves with a thermal efficiency rating of 75% or more, and asphalt roofs with cooling granules.
Other tax changes
- The Act modifies the child tax credit for 2008 by lowering the income threshold for the refundability of the credit from $12,050 to $8,500.
- The deduction for up to $250 of personal expenditures by teachers, counselors, and principals in K-12 schools for materials and supplies is extended for 2008 and 2009. This is an "above-the-line" deduction: you need not itemize to take this deduction.
- IRA owners who have reached age 70½--and who must therefore begin to withdraw money from their retirement accounts--can contribute up to $100,000 of directly to a qualified charity without having to include the distribution in income. This tax benefit is extended for 2008 and 2009, but is only available for individuals over age 70½ by the end of the year.
- The Housing and Economic Recovery Act of 2008 established a new real property tax standard deduction for non-itemizers. The maximum deduction is $1,000 for married couples filing jointly and $500 for all others. This deduction can’t exceed the amount of state and local real property taxes that you actually pay during the year. This deduction was originally for 2008 only. The Emergency Economic Stabilization Act of 2008 extends it through 2009.
- The optional itemized deduction for state and local sales taxes (in lieu of deducting state and local income taxes) is extended for 2008 and 2009. You must claim itemized deductions on Schedule A of Form 1040 to take this deduction.
- The deduction for up to $4,000 of college tuition and related fees is extended for 2008 and 2009. This above-the-line deduction allows married couples (filing jointly) with incomes of $130,000 or less ($65,000 for individuals) to deduct up to $4,000 in higher education expenses and those couples (filing jointly) earning $130,000 to $160,000 ($65,000 to $80,000 for individuals) to deduct up to $2,000. As it is an "above-the line" deduction, if you qualify, you need not itemize to take it.
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Credit Card Act of 2009
The Credit Card Accountability Responsibility and Disclosure Act of 2009 was approved May 20, 2009. The bill contains a number of provisions intended to provide protection to consumers from unreasonable interest rate increases and credit card fees. Legislation bans double-cycle billing and retroactive interest rate hikes on existing balance, unless payment is at least 60 days late, and requires card issuers to provide 45 days advance notice of any impending rate hike. Statements must be mailed 21 days before the bill is due, rather than the 14 days presently required.
The Credit Card Act prohibits issuers from making pre-screened credit card solicitations to any individual under-age of 21; unless the individual expressly opts into receiving the solicitations.
Although there were many suggested revisions through the passing of this Act under the final rules of the Card Act:
· disclosures accompanying credit card applications and solicitations must highlight fees and reasons penalty rates might be applied, such as for paying late’
· creditors are required to summarize key terms at account opening and when terms are changed;
· specific fees are identified that must be disclosed to consumers in writing before an account is opened, and creditors are given flexibility regarding how and when to disclose other fees imposed as part of the open-end plan;
· costs for interest and fees are separately identified for the cycle and year to date; and
· creditors are required to give 45 days’ advance notice prior to certain changes in terms and before the rate applicable to a consumer’s account is increased as a penalty.
The rules become effective July 1, 2010
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2009 Mileage Rates for Tax Purposes
Beginning on Jan. 1, 2009, the standard mileage rates for the use of a car (also vans, pickups, or panel trucks) will be:
- 55 cents per mile for business miles driven,
- 24 cents per mile driven for medical or moving purposes, and
- 14 cents per mile driven in service of charitable organizations.
The new rates for business, medical and moving purposes are slightly lower than rates for the second half of 2008 that were raised by a special adjustment mid-year in response to a spike in gasoline prices. The rate for charitable purposes is set by law and is unchanged from 2008.
The business mileage rate was 50.5 cents in the first half of 2008 and 58.5 cents in the second half. The medical and moving rate was 19 cents in the first half and 27 cents in the second half.
The mileage rates for 2009 reflect generally higher transportation costs compared to a year ago, but the rates also factor in the recent reversal of rising gasoline prices. While gasoline is a significant factor in the mileage rate, other fixed and variable costs, such as depreciation, enter the calculation.
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