Corporate, Business & Banking Department E-Newsletter—Volume 1
In an effort to keep our clients informed on timely legal issues, the Corporate, Business & Banking Group at Fitzpatrick Lentz & Bubba, P.C. is proud to present its inaugural E-newsletter.
What Businesses Need to Know About the Economic Stimulus Act of 2008
The Economic Stimulus Act of 2008 (“Act”) includes substantial, one-time tax benefits for businesses. Knowing these two Internal Revenue Code Sections may help you realize a dramatic tax benefit, and at a minimum will give you a great talking point as you and your qualified tax professional charge into tax season.
SECTION 179 EXPENSING
- Prior to the Act, section 179 permitted a business with a small amount of annual property purchases to expense the cost of the property instead of depreciating it. The Act increases the expensing limit allowing more property to be expensed in the 2008 tax year.
- The Act increases the maximum expense deduction to $250,000 for qualified property that is placed in service in the 2008 tax year. This is a 95% increase from the previous limitation of $128,000.
- The Act also increases the total amount of qualifying property a taxpayer may purchase before the expensing limit phases out. Under the new law, the $250,000 deduction amount is reduced only when a business acquires more than $800,000 of qualifying property.
SPECIAL DEPRECIATION ALLOWANCE
- The Act also provides for a 50% special depreciation allowance for property acquired and placed in service during 2008.
- Under the Act, a taxpayer is entitled to depreciate 50% of the adjusted basis (after subtracting the section 179 deduction) of qualified property during the year the property is placed in service.
- The types of property that qualify for the 50% special depreciation allowance are IRC Section 168 property with a recovery period of 20 years or less, off-the-shelf computer software, water utility property and qualified leasehold improvement property.
- To qualify for the 50% special depreciation allowance, a taxpayer is required to 1) acquire new property after 12-31-07 and before 1-1-09; and 2) place the property in service before Jan. 1, 2009.
HOW IT WORKS
- Taxpayer purchases and places in service in 2008 a single piece of property at a cost of $450,000 that qualified for section 179 expensing and the 50% special depreciation allowance.
- $250,000 of the cost could be immediately expensed (under section 179) and the remaining $200,000 of adjusted basis would be available for the 50% special depreciation allowance. The taxpayer would also be permitted to take regular depreciation on the remaining $100,000 of adjusted basis during that year.
While a qualified tax professional is undoubtedly well versed in these new provisions of the Internal Revenue Code, it never hurts to ask if they’ll make a difference on your tax burden this year. The answer might surprise you.
*** FEDERAL TAX ADVICE NOTICE*** IRS RULES MANDATE RESTRICTIONS ON FEDERAL TAX ADVICE PROVIDED BY ATTORNEYS. THIS NEWSLETTER IS NOT INTENDED TO BE TAX ADVICE, BUT RATHER AN UPDATE ON 2008 IRC AMENDMENTS. IF THIS NEWSLETTER CONTAINS (OR MAY BE CONSTRUED TO CONTAIN) ANY FEDERAL TAX ADVICE, SUCH ADVICE IS NOT INTENDED TO BE USED, NOR CAN IT BE USED, FOR THE AVOIDANCE OF ANY TAX PENALTIES THAT MAY BE IMPOSED UNDER FEDERAL TAX LAWS.
Has Your Corporation Held Its Meeting Lately?
As a friendly reminder, Pennsylvania corporate law requires Shareholders and Directors to hold an annual meeting. If your business is presently registered as a corporation, one of your responsibilities in maintaining its corporate status, and the liability protection afforded thereby, is to hold such meetings. Failure to do so may make it easier for a court to “pierce the corporate veil” and hold the shareholders personally liable for corporate debts.
As an alternative to holding a formal meeting, the Bylaw of many corporations permit the preparation of a Unanimous Consent in lieu of the meetings of the Shareholders and Board of Directors. The consent forms should evidence the election of directors and officers, ratify actions taken by the directors and officers during the year and disclose any significant changes in the business (i.e. major financing, new leases, or loans to or from shareholders, officers or directors, etc.).
Limited Liability Companies are not subject to annual meeting requirements like Pennsylvania corporations. Nevertheless, an annual meeting is always advisable as evidence of the members respecting entity formations and as the definitive means of monitoring your business’s direction and growth.
Please don’t hesitate to contact Fitzpatrick Lentz & Bubba, P.C. if it’s been a while since (or you can’t remember) your corporation’s last meeting. Our professionals will gladly assist you in satisfying your meeting requirements including the preparation of meeting minutes or Unanimous Consents.
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