Talk about last-minute changes to the tax code! The primary purpose of the Emergency Economic Stabilization Act of 2008 (EESA) is to solve the credit crunch in the financial markets, but it’s also one of the biggest tax bills in recent years.
Many drycleaning plants and their owners will be affected by the historic rescue bill recently passed by Congress and signed into law by President Bush. Included in the bill are almost 300 changes to the tax laws — including tax breaks expected to save taxpayers a whopping $150 billion. The new law includes a much-anticipated alternative minimum tax (AMT) “patch,” an extensive package of tax extenders, disaster-relief measures, energy incentives and more.
For small businesses and professionals who are, according to lawmakers, those with bank deposits large enough to be at risk, a portion of the bailout bill raises FDIC and National Credit Union Share Insurance Fund deposit insurance limits from $100,000 per account to $250,000. However, the increased level is temporary and expires after 2009.
EXTENDING THE EXPIRED
Many breaks that expired at the end of 2007 or were set to expire this year were extended, thanks to the 2008 EESA. Not all of these tax breaks will impact drycleaning businesses or laundries; indeed, some provisions target special-interest groups and might appear frivolous.
Consider provisions such as relaxed rules for film and TV production, a seven-year recovery period for motorsports entertainment complexes, and a cap on rum excise taxes in Puerto Rico and the U.S. Virgin Islands. The new law also extends a provision that reduces import duties on a limited quantity of imported wool fabrics and places the duties otherwise collected into a Wool Trust Fund to promote the competitiveness of American wool.
Closer to home — and to most businesses’ realities — additional provisions of the EESA will clearly affect drycleaning businesses and their owners.
PATCHING THE AMT
The law boosts Alternative Minimum Tax (AMT) exemption amounts for individuals for 2008, and provides for (at least for 2008), personal, nonrefundable credits to offset the AMT and regular tax payments. It increases the income threshold at which people begin to feel the effects of the AMT.
Not indexed to inflation, the AMT is designed to prevent the wealthy from avoiding paying taxes altogether, but has affected an increasing number of middle-class taxpayers in recent years. Each year, Congress passes a series of “patches” to boost the threshold. The patch included in the new law raises AMT exemption amounts for 2008 to $69,950 for married couples filing jointly, and $46,200 for single taxpayers. The total savings to taxpayers, according to the U.S. Treasury? Almost $62 billion.
Earlier tax-law changes shortened the cost-recovery period for improvements made to leased business properties from 39 to 15 years. The new law not only extends the faster write-off for so-called “leasehold improvements” to the end of 2009, but also allows retailers to benefit from the shorter recovery period.
Drycleaners with retail locations can now share in tax savings estimated to reach $8.7 billion over 10 years. The shorter, 15-year write-off period for more permanent improvements to retail locations is good only for the 2009 tax year, but the write-off applies to owner-occupied businesses and restaurants, as well as leased retail establishments.
The new law extends a number of energy tax incentives — some targeted to consumers, others to producers and manufacturers. Many of the extensions apply to drycleaning businesses, while a number of the extensions go beyond the one- or two-year periods typically authorized by lawmakers.
The new law extends several energy-efficiency and energy-related property-tax incentives. Among the renewable-energy incentives, for example, is an eight-year extension of investment credits for solar energy, as well as tax breaks for wind, geothermal and other alternative sources.
In addition to tax credits for using solar or another alternative energy source in a drycleaning plant or business, there is also a unique tax deduction available to anyone making a commercial building more energy-efficient. Tax deductions for energy-efficient buildings have been extended through December 31, 2013, and are expected to generate a tax savings in excess of $890 million over a 10-year period.
Rather than a deduction for the cost of equipment or improvements that go into making a commercial building more energy-efficient, the amount deductible is up to $1.80 per square foot of building area for buildings that achieve a 50% energy savings target. A smaller, flat-rate deduction is available for energy savings under 50%.
To qualify, energy savings must be accomplished through cost reductions realized from the building’s heating, cooling, ventilation, hot-water and interior-lighting systems. This opens the door to a number of possibilities, but professional guidance is strongly recommended to take advantage of these provisions — as is the case with most of the EESA’s finer points.
Check back tomorrow for Part 2!