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The Year in Taxes

By: Mark E. Battersby
Posted: February 25, 2009, from the March 2009 issue of Skin Inc. magazine.

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The New Markets Tax Credit is one of the few incentives in U.S. tax law to encourage taxpayers to invest in or make loans to small businesses in economically distressed areas. Created to increase investment in low-income communities, the total credit equals 39% of the investment over seven years. And previously set to expire at the end of 2008, the New Markets Tax Credit has been extended through December 2009, generating an expected tax savings of $1.3 billion over 10 years.

Other tax provisions contained in last fall’s Emergency Economic Stabilization Act also might be of limited benefit to a spa business. They include:

  • Enhanced charitable deductions for qualified computer contributions to schools.
  • Investments in recycling. Businesses can claim accelerated depreciation for purchases of equipment used to collect, distribute or recycle a variety of commodities.
  • Bicycle commuters. Employers are allowed to provide employees who commute to work by bicycle limited fringe benefits to offset the costs of this type of commuting, such as storage.

On the downside of upside tax savings

Although these tax breaks passed with only minimal offsets or revenue-enhancers, there are a few provisions designed to offset the loss to the U.S. Treasury. Approximately $44 billion in offsets mean tax increases for some taxpayers. The Federal Unemployment Tax Act, or FUTA, surtax is one such area.

The FUTA imposes a 6.2% gross tax rate on the first $7,000 paid annually by employers. In 1976, Congress passed a temporary surtax of 0.2% of taxable wages to be added to the permanent FUTA tax rate, and the temporary surtax has subsequently been extended through 2008. This bill extends the surtax for one year only—at an estimated cost to employers of $1.47 billion over 10 years.

Although the primary purpose of the Emergency Economic Stabilization Act of 2008 was to solve the credit crunch in the financial markets, it was one of the largest tax bills in recent history. Under Congressional rules, however, tax savings were computed over a 10-year period, so the lion’s share of that expected outlay occurs in the 2008 and 2009 tax years.