Tax Breaks for Equipment and Software Purchases

Especially for those planning action before December 31, 2008
 For tax years beginning in 2008 the maximum one-year writeoff under Internal Revenue Code Section 179 has been increased to $250,000 of the cost of new and used equipment and software purchases. However, the deduction cannot exceed your business's net income and is reduced dollar-for-dollar if the total amount of qualifying purchases for all related businesses exceeds $800,000.
 
For tax years beginning in 2008 and only for 2008, unless Congress extends this provision, there is a 50% first-year bonus depreciation allowed for the cost of new equipment and software purchases, if and after any Section 179 one-year writeoff has been taken on the cost of such new equipment and software purchases.
Higher Education Tuition Deduction Extended

An option to the HOPE or Lifetime Learning Credit
The Emergency Economic Stabilization Act of 2008 which was signed by the President on October 3, 2008 extends the above-the-line education tuition deduction for costs of qualified higher education expenses paid during the year for themselves, a spouse, or a dependent. The maximum deduction is $4,000 for taxpayers with adjusted gross income not exceeding $130,000 on a joint return or $65,000 on a single return. The maximum deduction is $2,000 if adjusted gross income is between $130,000 and $160,000 on a joint return ($65,000 to $80,000 for single taxpayers). 
 
Refundable Child Tax Credit Increased
Reduces phaseout effects: maximum increase is $532.50
The Economic Emergency Stabilization Act of 2008 signed by the President on October 3rd, 2008 reduces the "threshold" earned income amount of $12,050 to $8,500 effective for tax years beginning after December 31, 2007, i.e. for 2008 and beyond. More taxpayers with limited earned income will receive more child tax credit than under the old law. For example, a mother with two children and $12,050 of earned income under the old law would receive no child tax credit. Under the new law, her child tax credit will be $12,050 less $8,500 times 15% or $532.50 if her tax liability is zero. If her earned income was $20,000 instead and her tax liability was $300, her child tax credit will be the maximum $2,000, computed as follows:  $1,725 ($20,000 less $8,500 times 15%) plus her tax liability up to the maximum of $1,000 per child or $2,000 in this case.
 
The 2008 AMT Patch
Nonrefundable personal tax credits may be offset against AMT
The Emergency Economic Stabilization Act of 2008 signed by the President on October 3rd, 2008 extends the 2007 increases in the AMT exemption amounts. In addition, nonrefundable personal tax credits are again allowed in full against AMT tax liability. These credits include
 

    * the dependent care credit,
    * the credit for the elderly and disabled,
    * the adoption credit, the child tax credit,
    * the credit for interest on certain home mortgages,
    * the HOPE and Lifetime Learning credits,
    * the retirement savings contributions credit,
    * the credit for certain nonbusiness energy property,
    * the credit for residential energy efficient property, and
    * the DC first-time homebuyer credit.   

The extension does not apply to the personal use portions of the credits for alternative motor vehicles and  alternative fuel vehicle refueling property. The personal use portion of these credits may only be used against the excess of the regular tax reduced by all other nonrefundable credits.
Also extended is the provision allowing utilization of past AMT tax credits due to "phantom" income caused by taxpayers who exercised incentive stock options (ISOs) at a profit, thus causing an AMT tax, and sold at a lesser price.
 
 
Greater AMT Credit Relief for Long-Term Unused Credits
A complicated provision
The new AMT refundable credit amount for years 2008 through 2012 is the greater of : (1) 50% of the unused credit for a particular tax year beginning after 2007, or (2) the amount of the AMT refundable credit determined for the preceding tax year...for 2008 that would be 2007. In 2007 the rule was the AMT refundable credit was the greater of: (1) the lesser of $5,000 or the taxpayer's unused AMT credit, or (2) 20% of the unused credit, reduced by an "applicable percentage" of the difference between the adjusted gross income and the personal exemption phaseout amount. It's complicated. The amount of AMT credit that will actually hit the checkbook will increase. Let's let either the tax return software or the tax projection software compute it, and I will check it.

Home Owner Relief
A few small bones for slim pickings
The Emergency Economic Stabilization Act of 2008 extends through 2012 a provision allowing the forgiveness of debt income in a situation where the "qualified principle residence indebtedness" is discharged. It does not apply to loan balances incurred for other than purchase or improvement of the principle residence.
 
The Act extends the additional $1,000 standard deduction for real property taxes paid by taxpayers who do not itemize ($500 for single taxpayers) through 2009. It was initially enacted in the Housing Assistance Tax Act of 2008 for only 2008. For example, on a joint return, the regular standard deduction of $10,900 for 2008 will be increased to $11,900 if the taxpayer-homeowner paid real estate taxes in 2008.
 
The credit of up to $500, for all tax years,  for residential energy property has been reinstated for 2009, but not for 2008. No more than $200 can be used for windows. The credit is available only for residences located in the US and used as the principal residence. The credit was expanded to cover the following:
 

    * stoves that use renewable plant-derived fuel
    * asphalt roofs wth cooling granules
    * certain energy efficient water heaters
    * removal of geothermalheat pump property

The 30% residential alternative energy credit for solar electric and water heating property was extended through 2016 for the following:
 

    * $2,000 for qualified solar electric property in 2008
    * $2,000 for qualified solar water heating property
    * $500 for each half kilowatt of capacity of fuel cell property
    * $500 for each half kilowatt of capacity of qualified small wind energy property
    * $2,000 for qualified geothermal heat pump property

The maximum annual credit limit for qualified solar electric property expenditures has been eliminated after 2008.
 
 
Charitable Distributions from IRAs Extended
Allows a taxpayer to get an effective charitable deduction from Massachusetts taxable income
The Economic Emergency Stabilization Act of 2008 extended to tax years 2008 and 2009 the benefit of having a payment, limited to $100,000 per year, sent directly from a taxpayer's IRA balance to a qualified charity without either recognizing income or being entitled to take the charitable deduction. However, this benefit is only available to taxpayers who have reached the age of 70 1/2 before the date of the payment.

Transportation Fringe Benefit for Cyclists
Cyclists are riding high with this long-awaited provision
The Emergency Economic Stabilization Act of 2008 provides that starting in 2009 employers may pay directly or reimburse expenses associated with bicycle commuting to work, up to $20 per month, as a tax-free fringe benefit, during a 15 month period beginning with the first day  of any calendar year in which a bicycle is regularly used for commuting. Reimbursable costs include the purchase of a bike, accessories, improvements, repairs, storage, etc. There appears to be no expiration date for this new provision.
 
According to the League of American Bicyclists, more than 500,000 in the US use bikes to commute.
 

 
As a practicing CPA for over 40 years, I can say for sure that a number of my clients invariably forget or neglect to furnish the cost basis of securites sold. Any of my clients who have brokerage accounts with Fidelity can appreciate their recordkeeping, which I believe is the best in the industry, because they furnish the cost basis and gain or loss on securities sold.
 
 
Deduction for Classroom Expenses Extended
A small but helpful tax provision for educators
The "above-the-line" deduction from adjusted gross income for education expenses up to $250 a year is extended to 2008 through 2009. It allows elementary and secondary school teachers who have worked at least 900 hours in a school during the school year a deduction for payments for books, computer and other equipment, supplementary materials and supplies, and similar expenses. It is not clear whether summer school work counts towards the 900 hour requirement. This provision has been extended twice for two year periods since 2003.
 
State and Local Sales Tax Deduction Extended
For Massachusetts residents, this provision mainly benefits purchasers of big ticket items.
 The election to deduct local and general sales taxes as an itemized deduction in lieu of state income taxes is extended for 2008 through 2009. It generally works only if the taxpayer has purchased a car, boat, lots of furniture, or other big ticket items, but for various reasons has low gross income (perhaps because of large amounts of nontaxable income).

Other Extenders for Businesses
Given in summary for selected items only
 
The 15 year depreciation period for qualified leasehold improvements is extended through 2009.
 
The 15 year depreciation period for restaurant improvements and buildings is extended through 2009.
 
The 15 year depreciation period for qualified interior improvement to a building used for a retail business is extended through 2009.
 
The research credit is extended through 2009, with certain technical changes.
 
The enhanced corporate deduction for charitable contributions of computers is extended through 2009. This only applies to contributions made by a "C" corporation. Other technical rules apply.