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The Year in Taxes

Mark E. Battersby March 2009 issue of Skin Inc. magazine
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As the deadline for filing tax returns fast approaches, every spa business owner should be aware of the many recent changes to tax laws, changes that will affect the tax bill for 2008 and for many years to come.

Naturally, not all of last year’s tax law changes apply to spa facilities and businesses. Last summer’s passage of the Housing and Economic Recovery Act of 2008, for example, was notable for the absence of significant business-related tax incentives, as the bill’s First-Time Homebuyer Tax Credit, the Reduced Home Sale Exclusion and other consumer-oriented provisions virtually hid the acceleration of large-corporation estimated tax payments.

Stimulating the economy

Earlier in the year, however, the Economic Stimulus Act of 2008 was signed into law, complete with rebates and business incentives. Most noticeable for the recovery rebates, reaching as high as $600 for individuals and $1,200 for married couples, the new law also included $44.8 billion in business incentives.

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A Primer to Taxes and the Emergency Economic Stabilization Act of 2008

On Oct. 3, 2008, Congress passed—and 90 minutes later, former President George W. Bush signed into law—the historic financial markets bailout bill. The bill includes more than 100 tax provisions and in excess of $150 billion in separate tax breaks.

In addition to tax provisions directly related to the bailout measures, the new law includes a patch to the alternative minimum tax (AMT) that has been hitting an increasing number of taxpayers every year. Without the patch, married couples filing jointly would have been subject to the AMT on income above $45,000. With the new patch, the first $69,950 is exempt from the AMT.

The new law also includes a host of incentives targeted to businesses, several of which revise, as well as extend, tax benefits. Among the most significant are:

  • R&D tax credit: Although the research tax credit expired Dec. 31, 2007, the new law extends to credit to amounts paid or incurred in 2008 and 2009. The tax credit, equal to 20% of the amount by which a taxpayer’s qualified research expenses exceed its base amount for the year, represents a tax savings of $20 million over 10 years.
  • Leasehold improvements: Qualified business improvements, as well as leasehold improvements, will be eligible for a 15-year recovery period rather than a 39-year period. This means a faster and larger write-off for these improvements, as well as certain improvements to retail space. Even better, the write-off applies to owner-occupied businesses as well as leased establishments.
  • First-year write-off for Brownfield’s remediation costs: The bill extends a provision allowing for the expensing or immediate write-off of costs associated with cleaning up contaminated sites. Although it was supposed to end after 2007, the bill extends the write-off to the end of 2009—at an expected savings of $357 million over 10 years.
  • Energy efficiency: The new law extends several energy-efficiency and energy property tax incentives. Current law allows taxpayers to deduct the cost of energy-efficient property heating, cooling, ventilation, hot water and interior lighting systems installed in commercial buildings. The renewable energy incentives include an eight-year extension of investment credits for solar energy, as well as breaks for wind, geothermal and other alternative energy sources. Tax deductions for energy-efficient buildings were extended through Dec. 31, 2013. Lawmakers also modified the energy-efficient appliance credit for manufacturers of qualifying dishwashers, clothes washers and refrigerators.
  • Recycling investments: The bill allows taxpayers to claim accelerated depreciation for equipment used to collect, distribute or recycle a variety of commodities.
  • Charitable contributions: The tax law gives businesses enhanced deductions for contributions of food to charitable organizations and contributions of books and computer equipment to qualifying schools. The new law extends these tax breaks through Dec. 31, 2009. S corporation shareholders are also eligible for special tax treatment for similar charitable contributions.
  • And: On an even more limited note, the new law also contains tax savings of $100 million for NASCAR tracks, a $478 million savings for film and television producers, a $2 million excise tax exemption for wooden practice arrows and a $2 million savings for employers who pick up part of the tab for employees commuting to work on bicycles.

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