Wednesday, February 25, 2009

9 Tax Law Changes for 2009 that Make Tax Preparation Easier

While undertaking tax preparation for 2009, you have to be aware of the changes in the tax laws in order to reap the maximum benefit. Given below is the list of the changes which are applicable to small businesses, as explained on the government website for business resources Though this list covers the major changes in tax law and will help you in tax preparation, you should consult your tax advisor or CPA for a comprehensive analysis of those applicable to your business. Also keep visiting the official Internal Revenue Service ( website for the latest updates.

Major changes in tax laws of 2009 include:

  1. Commuting and Parking Benefits for Employees - Starting 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 $120 a month, up $5 a month from 2008. 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.
  2. Expensing Business Equipment - What business expense write offs can you plan on this year? The maximum amount of equipment placed in service in 2009 that businesses can expense (section 179 Expense Deduction) falls to $133,000, a $117,000 decrease from 2008, when a temporary $250,000 ceiling was in effect. The annual investment limit drops to $530,000 for 2009. In 2008, the limit had been temporarily increased to $800,000. Keep your ears to the ground on this one, however, as the government may extend the 2008 tax breaks for 2009.
  3. 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 2, 2008 and June 30, 2009.
  4. Lower Mileage Rates - As expected, the IRS lowered the standard mileage rates for the business use of vehicles. Beginning on Jan. 1, 2009, the standard mileage rate for the use of a car (also vans, pickups or panel trucks) is:

    (a) 55 cents per mile for business miles driven
    (b) 24 cents per mile driven for medical or moving purposes
    (c) 14 cents per mile driven in service of charitable organizations
  5. 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 percent on employers and employees.
  6. Maximize Your Retirement Contributions - In 2009, small business owners have the opportunity to invest more tax-deductible money in their retirement savings accounts. These include:

    (a) 401(k) elective deferrals up to $16,500 (plus another $5,500 for those age 50 or older by the end of 2009); the limits had been $15,500 (plus another $5,000 for those age 50 or older by the end of 2008).
    (b) SEP and profit-sharing plan limit of $49,000 (up from $46,000 in 2008).
    (c) Defined benefit (pension plan) limit of $195,000 (up from $185,000 in 2008).
  7. 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.
  8. Bonus First-year Depreciation Ends - Businesses can no longer claim 50 percent bonus first-year depreciation on assets placed in service in 2009.This was a special write-off that was put in place for the 2008 tax year.
  9. 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.

It is very important for you to plan your business tax according to these new tax laws. But these laws are ever-changing and you need to keep a track of them each year. If tax preparation and keeping track of business tax laws seems too much of a hassle for you, you can hire an expert tax advisor or a firm which provides tax preparation services. You can also try outsourcing tax preparation. In case you have confusions or questions regarding tax laws, try consulting a professional who specializes in business tax preparation.


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Monday, February 9, 2009

How can Tax Preparation and Filing become a hassle-free experience?

The income tax filing season can be a difficult time for many business owners. The IRS is flooded with inquiries from exasperated businessmen regarding tax filing from February till May each year. If you are one of the people who need guidance on your tax issues, browse through the official Internal Revenue Service website for guidance and information.

There are 2 perennial problems businessmen face when it comes to tax preparation:
• Poor Record Keeping
• Keeping Up with the Changing Tax Laws

Problem 1: Poor Record Keeping

Tax PreparationPoor record keeping is the problem for most businessmen who are busy in running a business and keeping it profitable. All records of transactions in and out of the business are carelessly kept to the extent that sometimes they don’t know where their business stands financially. At the time of filing business tax, these businessmen are hence clueless. Some businessmen use their checkbooks as records, but face problems when they can’t locate their check registers. Even more disorganized are those businessmen who keep documents in piles or boxes and are referred by CPAs as “shoebox clients”. Such businessmen, at the time of tax filing, miss out on important tax deductions due to lack of documented proof.


The solution to this problem for businessmen is: get professional help. For all business documents, record keeping and ledgers, a professional bookkeeper should be hired. If a dedicated bookkeeper or bookkeeping service provider is looking after all documents, the businessman need not worry about maintaining his records from day-to-day. This way, at the time of tax preparation and filing, precise information will be available with documented proof.

Problem 2: Keeping up with Changing Tax Laws

Most businessmen also do not have the time to keep up with the constantly changing taxation laws. It is difficult for them to discern which law is applicable to them and which one is not. For example, many states’ laws differ from the Internal Revenue Code and require separate calculations.


In case of inability to follow the law changes, a businessman should hire a tax professional or tax advisor. Such professionals are updated with the latest changes in all laws related to taxes, and will be able to easily keep track of them. They will also be able to spot the applicable laws in respective situations. You can also regularly check the IRS website for the most updated information regarding laws of tax filing.

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