Paying US taxes

In the 2008 Paying Taxes report released by the World Bank and PWC, the United States scores near the middle on key metrics regarding our business taxation system. The composite rank was 76 out of 178 with regard to total ease of paying taxes. That number was pulled down significantly with a rank of 21 for the number of tax payments required to be made by the sample company used for comparison.

Although the number of payments is low the compliance time ranking is 122 for a total of 325 hours (200 of those hours for income tax) of compliance time required on tax filings. The total tax rate ranking is 102 for a total tax rate of 46.2% (27.1% income, 9.6% labor, 9.5% other taxes) for the sample company used in the comparisons.

The United States scores in the top half when considering the composite score, but when one only considers the time of compliance and tax rate, the United States is well into the bottom half of the rankings for paying taxes.

2008 Tax planning

Tax considerations for Individuals

Mortgage forgiveness income can be excluded up to $2,000,000.

10% tax credit (up to $7,500) for purchase of a home between January and June 2009. Credit must be repaid over a period of 15 years starting two years after purchase. Credit is phased out for single taxpayers with AGI over $75,000 and married taxpayers with AGI over $150,000.

If equity positions sold during 2008 are repurchased within 30 days of the sale, losses from those sales are disallowed.

Incentive Stock Options (ISOs): the spread is not included in compensation at the time the option is granted. Although not taxable at the time granted, the spread is an AMT preference item. The liability for any taxes paid or owed (as well as interest and penalties) due to this AMT preference are creditable and the tax liability is abated going forward.

AMT exemption amounts have increased for 2008 to $69,950 for married taxpayers filing jointly and $46,200 for single taxpayers.

Higher education tuition deduction has been extended to 2009 with an AGI phase out above $130,000 for single taxpayers and $160,000 for married taxpayers.

Kiddie tax consideration has now been extended to include full-time students up to 24 years of age.

Tax considerations for Businesses

Section 179 expense has been increased for 2008 to $250,000 with a phase-out starting above $800,000.

Extension of New Markets Tax Credit has been extended for distressed areas to spur development.

Bonus depreciation is back for 2008 for assets with MACRS recovery periods of less than 20 years and will expire at the end of 2008.

15 year life for leasehold improvements has been extended.

R&D tax credits have been extended through December 31, 2009 and the Alternative Simplified Credit rate has been increased to 14% for 2009.

Commercial Energy Efficient Property Tax Incentives – added deductions for making the property more energy efficient than a certain standard in the area. Entire project must undergo rigorous oversight to ensure adherence to these additional standards.

LIFO inventory valuation during highly inflationary periods may result in higher deductions.

Tax time

With tax time just around the corner, now is the perfect opportunity to start looking over the profit and loss statement for the year and consider the tax consequences.  As you review your situation and questions start to arise, make a list and discuss these issues with your CPA sooner rather than later and get a handle on these issues while there is still plenty of time to plan and prepare.

Best of luck keeping Uncle Sam out of your wallet!