Grant Thornton Offers Tax Tips For Contractors

by Leroy Baker, Tax-News.com, New York

30 January 2009

Grant Thornton LLP has offered a variety of tax tips to contractors in the United States to further help them manage their tax burdens and minimize spending.

According to the advisory organization, construction contractors should keep in mind the following tax tips throughout 2009:

• Nail down "bonus" depreciation deductions. As an incentive for investment in equipment, taxpayers are allowed to deduct half of the cost of 2008 qualifying property in the first year of use, and then depreciate the remaining half of the asset over its normal useful life. For five year equipment, this results in a deduction of 60% of the asset's cost. Property investments in 2008 can be used as bonus depreciation.
• Maximize capital asset expensing deductions. Rules originally intended for small businesses were significantly expanded in 2008 to allow contractors to expense up to USD250,000 of fixed asset cost, provided less than USD800,000 of assets are placed in service throughout the year. Unlike bonus depreciation, this applies to new or used assets.
• Consider future capital gains and dividend tax rate increases. Under current law, capital gains and qualified dividends are taxed at a favorable 15% federal income tax rate. This preferential treatment is scheduled to expire at the end of 2010, however, the presidential election may significantly change the taxation landscape. Taxpayers with significant capital gains transactions will want to work with tax advisers to determine if the tax positions of the new president and Congress merit acceleration of these items into 2009.
• Revisit the tax rebate. Most taxpayers who qualified for an Economic Stimulus rebate have already received a check, however there are situations where taxpayers may claim an additional credit, even though they have already received a check. The tax stimulus rebate actually is an advance rebate on 2008 tax liabilities, so if income or dependency changes from 2007 to 2008, taxpayers may be able to claim additional credits when they file their 2008 income tax returns this filing season.
• Look out for the expanded "Kiddie tax." Most contractors are family-owned businesses and many have used a variety of tax planning techniques to shift income from one family member to another. The kiddie tax has been expanded to require excess unearned income of full-time students under age 24 to be taxed at their parents' marginal rate, unless the student's earned income equals one-half of his or her support. Thoroughly review estate planning and gifting strategies to avoid higher income taxes on dependent children over age 18.

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