Key Tax Changes for 2009

Key Tax Changes for 2009
As you prepare to work through your taxes for 2009, consider the following business changes. This year’s shifts may offer an opportunity to save money, so you, your accountant and/or your tax preparer should be prepared.
Section 179—The American Recovery and Reinvestment Act makes several important changes to the equipment write-off rules, but only for 2009. First, the maximum amount that can be written off under Section 179 is $250,000 and the investment limitation is $800,000 for tax years beginning in 2009. The maximum amount of equipment placed in service in 2009 was scheduled to fall to $133,000, a $117,000 decrease from 2008, when a temporary $250,000 ceiling was in effect, but the 2008 levels have been extended.
Bonus depreciation—The 50% bonus depreciation deduction for qualifying property has been extended an additional year and applies to property placed in service before January 1, 2010 (January 1, 2011 for certain other property, including that with a longer production period).
Bonus depreciation is only available for new property and only property depreciable under MACRS with a recovery period of 20 years or less. Bonus depreciation is automatic. You can, however, elect out of it. (You might consider doing so if 2009 is a particularly bad year and you expect to be in a higher bracket in future years.)
The luxury car depreciation caps for vehicles that qualify for bonus depreciation are increased by $8,000 for vehicles placed in service before January 1, 2010. Thus, the limit on cars is $10,960; the limit on trucks and vans is $11,060.
Depreciation of restaurants and retail stores—The current 15-year depreciation period for tenant and restaurant improvements is expanded to include buildings housing restaurants, and improvements made to retail stores that are placed in service in 2009.
Payroll tax changes—The maximum amount of wages subject to Social Security tax has increased to $106,800 for 2009, up from $102,000 in 2008. That means you should stop making (and paying) Social Security for employees once they reach $106,801 in eligible earnings in 2009. The tax rate remains 7.65% on employers and employees.
Self-employment tax contribution base increased—The maximum amount of self-employment income subject to Social Security taxes increases to $106,800 in 2009, up from $102,000 in 2008. The self-employment tax rate remains 15.3%.
Estimated tax relief for small business owners—If an individual’s Adjusted Gross Income for 2008 was less than $500,000, and more than half of gross income was from a business with fewer than 500 workers, the owner’s estimated income taxes for 2009 estimated payments can be based on the lesser of 90% of tax liability for 2008 or 2009. The usual estimated tax benchmarks of 100% or 110% of tax liability do not apply.
Withholding changes—The IRS has announced changes in withholding rates for 2009 and 2010. These changes are the result of the Making Work Pay provision of the American Recovery and Reinvestment Act (ARRA), which provides a refundable tax credit of up to $400 for working individuals and $800 for married taxpayers filing joint returns. This tax credit will be calculated at a rate of 6.2% of earned income and will phase out for taxpayers with adjusted gross income in excess of $75,000, or $150,000 for married couples filing jointly. (See the new withholding tables for more information.)
Estimated tax payments for small business owners—There are several ways to avoid a penalty for failure to pay estimated taxes. Most taxpayers avoid the penalty by paying in at least as much as the liability on the prior year’s return. For example, your total tax liability for 2008 was $8,000. If you pay at least $2,000 per quarter in 2009, you’ll avoid any penalty. If your adjusted gross income on last year’s return was more than $150,000, you’ll need to pay at least 110% of last year’s liability. (If you expect your tax liability to be lower than in the prior year, you can pay estimates based on your annualized, actual income for the year. This involves more computations.)
For tax years beginning in 2009, the 100% (or 110%) requirement for a “qualified individual” is reduced to 90%. A qualified individual is one whose:
adjusted gross income shown on the individual’s prior year tax return was less than $500,000 ($250,000 for a married person filing separately), and
the individual certifies that more than 50% of the preceding year’s gross income was from a small business.
Increased retirement plan contributions—In 2009, small business owners have the opportunity to invest more tax-deductible money in their retirement savings accounts. New contribution limits are:
401(k) elective deferrals up to $16,500 (plus another $5,500 for those age 50 or older by the end of 2009). In 2008, the limits were $15,500 (plus another $5,000 for those age 50 or older by the end of 2008).
SEP and profit-sharing plan limit of $49,000 (up from $46,000).
Defined benefit (pension plan) limit of $195,000 (up from $185,000).
Increased deductions for Health Savings Accounts (HSAs)—You can contribute more in 2009 to business HSAs, with a 100% tax deduction up to a limit of $5,950 for a family, and $3,000 for an individual.
First-time buyers with home-based businesses—If you operate your small business from an office situated within a first-time home purchase, you can still qualify for additional tax incentives, if you purchased your home between April 9, 2008 and June 30, 2009.
Lower mileage rates—As expected, the IRS lowered the standard mileage rates for the business use of vehicles. Beginning on January 1, 2009, the standard mileage rate for the use of a car (also vans, pickups or panel trucks) is:
55 cents per mile for business miles driven
24 cents per mile driven for medical or moving purposes
14 cents per mile driven in service of charitable organizations
Maximum automobile value for using the cents-per-mile valuation rule—For 2009, an employer providing a passenger automobile for the personal use of an employee may determine the value of the personal use by using the vehicle cents-per-mile value rule if the vehicle’s fair market value on the date it is first made available to the employee does not exceed $15,000 for a passenger automobile other than a truck or van, or $15,200 for a truck or van.
Commuting and parking benefits for employees—Beginning in 2009, businesses can pay $230 a month in tax-free parking for employees, up $10 per month from 2008. The cap on tax-free transit passes rises to $230 a month. In addition, you can offer employees who prefer to cycle to work a new tax-free benefit of $20 per month to cover the cost of buying, maintaining and storing a bicycle for commuting purposes.
For Quick Reference
The chart below outlines a number of personal and business tax rate changes.



Social Security/Medicare
2008
2009
Social Security Taxable Wage Base
$102,000
$106,800
Medicare Taxable Wage Base
No limit
No limit



Individual Retirement Accounts
2008
2009
Roth IRA
Lesser of $5,000 or 100% of earned income
Lesser of $5,000 or 100% of earned income
Traditional IRA
Lesser of $5,000 or 100% of earned income
Lesser of $5,000 or 100% of earned income



Roth and traditional IRA additional annual “catch-up” contributions for account owners age 50 and older,


$1,000
$1,000



Annual Qualified Plan Limits
2008
2009



Defined contribution plan dollar limit on additions to qualified plans, 403(b) plans and SEP plans




$46,000
$49,000



Defined benefit plan limit on benefits



Lesser of $185,000 or 100% of average compensation for highest three consecutive years
Lesser of $180,000 or 100% of average compensation for highest three consecutive years



Maximum compensation used to determine contributions




$230,000
$225,000



Elective deferral limits for 401(k) plans, 403(b) plans, 457(b) plans, and SAR-SEPs Unchanged for 2008

Lesser of $15,500 or 100% participant's compensation
Lesser of $16,500 or 100% participant's compensation



Additional catch-up contributions (individuals age 50 or older) for 401(k) plans, 403(b) plans, 457(b) plans, and SAR-SEPs

$5,000
$5,500



Elective deferral limits for SIMPLE 401(k) plans and SIMPLE IRA plans

Lesser of $10,500 or 100% participant's compensation
Lesser of $11,500 or 100% participant's compensation



Additional catch-up contributions (individuals age 50 or older) for SIMPLE 401(k) plans and SIMPLE IRA plans

$2,500
$2,500



Compensation defining highly compensated employee

$105,000
$110,000



Compensation threshold used to determine a key employee in a top-heavy plan

$1 for more than 5% owners; $145,000 for officers; $150,000 for more than 1% owners
$1 for more than 5% owners; $160,000 for officers; $150,000 for more than 1% owners



Compensation triggering Simplified Employee Pension (SEP) contribution requirement

$500
$550



Driving Deductions
2008
2009
Business mileage, cents per mile
50.5 (first half)58.5 (second half )
55
Charitable mileage, cents per mile
14
14
Medical and moving mileage, cents per mile
19 (first half)27 (second half)
24



Business Equipment
2008
2009
Maximum Section 179 Expense Deduction
$250,000
$250,000
Phase-out for Section 179
$800,000
$800,000



Qualified Transportation Fringe Benefit Exclusion
2008
2009
Commuter highway vehicle and transit pass, per month

$115
$230
Qualified parking, per month
$220
$230



Standard Deductions
2008
2009
Married filing jointly or surviving spouse
$10,900
$11,400
Single (and married filing separately)
$5,450
$5,700
Heads of Household
$8,000
$8,350



Itemized Deduction Phase-Out
2008
2009
Married filing separately
$159,650
$159,950



Personal Exemption
2008
2009
Amount
$3,500
$3,650



Sources: Internal Revenue Service, Small Business Tax Center, and IRS Small Business and Self-Employed Tax Center. Thanks to Martin G. Meyer, principal at B. Meyer Bookkeeping Services, for his help with the “For Quick Reference” list.