The Taxman Cometh

There is always death and taxes in life, but death doesn’t seem to be getting worse every year. Now, more than ever, complex tax issues are putting a strain on resources (especially for contractors and equipment owners), draining shrinking profits in a shifty economic world and pushing business owners into financial therapy. Especially during a recessionary period like today, contractors need to do what they can to minimize spending by effectively managing their tax burden and protecting themselves against tax increases and assessments. With 2009 ushering in new tax changes and the economic situation worsening, construction contractors should keep in mind the following tax tips:

1. Nail down “bonus” depreciation deductions. All contractors should be aware by now that bonus depreciation deductions were revived for investments made in calendar year 2008. 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 percent of the asset’s cost. If you invested in this property in 2008, make sure to take this bonus depreciation. And keep your eye on Congress in 2009. Legislators are already talking about extending this provision for calendar year 2009.

2. Maximize capital asset expensing deductions. Rules originally intended for small businesses were significantly expanded in 2008 to allow contractors to expense up to $250,000 of fixed asset cost, provided less than $800,000 of assets are placed in service throughout the year. Unlike bonus depreciation, this applies to new or used assets. Look for this provision again in 2009. Congress is expected to extend it.

3. Consider future capital gains and dividend tax rate increases. Under current law, capital gains and qualified dividends are taxed at a favorable 15 percent federal income tax rate. This preferential treatment is scheduled to expire at the end of 2010, however, the presidential elect 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.

4. 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.

5. 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.

The people in the independent firms of Grant Thornton International Ltd. provide personalized attention and the highest quality service to public and private clients in more than 100 countries. To read all of the tax tips, go to www.GrantThornton.com/CRHtaxtips or e-mail CRH@gt.com.

Taxing Returns Super Small — Gehl Introduces Its All-New Super-Compact 1640E Skid Loader

Compact equipment always seems to get larger as contractors require more power and comfort. But micro-machines definitely have their niche. Gehl Co., a leading manufacturer of compact equipment for agriculture and construction markets, just announced a new edition to the mini loader market — the super-compact Gehl model 1640E skid loader — which measures as narrow as 3 ft wide and 6.25 ft tall. The 1640E skid loader is ideal for maneuvering through alleys, narrow doorways, aisles and corridors. There are few places this machine can’t get through. Despite its size, the 1640E skid loader flaunts power too, with a 24-hp Yanmar diesel engine. The model 1640E gets jobs done efficiently with an 850-lb rated operating capacity and 96 in. of lift height. This machine is a true multi-tasker, with 9.1 gpm of auxiliary hydraulic flow for powering a variety of attachments, and the universal-style quick-attach system makes attachment changes quick and easy. The 1640E skid loader is also easily transportable with an overall machine weight of only 2,900 lbs. But the big question: How comfortable can it really be? Gehl says no sacrifice was made to operator safety or comfort in the 1640E skid loader. The standard deluxe, high-back seat or optional high-back suspension seat provides superior comfort, which reduces operator fatigue.