Earlier this month, Congress passed and President Bush signed into law a historic financial markets rescue bill, the Emergency Economic Stabilization Act of 2008. Although the new law's primary purpose is to solve the credit crunch in the financial markets, it contains plenty of features of interest to fast casual restaurant operators.
The act also serves as one of the largest tax bills in recent years, saving taxpayers an estimated $150 billion.
Restaurant improvements
Earlier tax law changes shortened the cost recovery periods for improvements made to leased business property and, more importantly, to "restaurant property." Now, under the new rules, qualified restaurant property as well as leasehold improvements will be eligible for a 15-year recovery period rather than a 39-year period. This means a faster and larger write-off. Even better, the write-off applies to owner-occupied businesses and restaurants, as well as leased establishments.
The new law not only extends these tax breaks until the end of 2009, it adds "retail businesses" to those qualifying for the shortened write-off period -– but only for 2009. The estimated savings for business owners from this provision is $8.7 billion over 10 years.
Energy efficiency
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The new law extends several tax breaks for making a business more energy efficient. Among the energy incentives contained in the bill is an eight-year extension of investment credits for those employing solar energy, as well as breaks for wind, geothermal and other alternative sources of energy.
In addition to tax credits for using solar or alternative energy in a business, there is also a unique tax deduction available to anyone making a commercial building more energy efficient. Tax deductions for energy efficient buildings were extended through Dec. 31, 2013, and are expected to generate tax savings in excess of $890 million over a 10-year period.
Rather than a deduction for the cost of equipment or improvements to make a commercial building more energy efficient, business owners can deduct up to $1.80 per square foot of building floor area for buildings achieving a 50-percent energy savings target. A smaller deduction is available for those achieving smaller energy savings.
FDIC insurance limit increases
Designed specifically for small businesses and their owners, who are, according to our lawmakers, the ones with large amounts of deposits at risk, a portion of the bailout bill raises the FDIC and National Credit Union Share Insurance Fund deposit insurance limits from $100,000 per account, to $250,000. The increased levels are only temporary, though, expiring after 2009.
Fewer need dread the AMT
The bill boosts the Alternative Minimum Tax exemption amounts for individuals for 2008, increasing the income threshold where people begin to feel the effects of the AMT. Although the AMT was originally designed to prevent the wealthy from avoiding paying taxes, because it was not indexed for inflation it has affected an increasing number of middle-class taxpayers.
Each year, Congress has passed a series of "patches" to boost the threshold. The patch included in the new law raises the 2008 tax year AMT exemption amounts to $69,950 for married couples filing jointly and $46,200 for single taxpayers. Total savings to taxpayers will be almost $62 billion.
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Giving it away for tax savings
The tax law enhances the deductions for contributions of food to charitable organizations, as well as contributions of books and computer equipment to qualifying schools. The new law extends these tax breaks through Dec. 31, 2009. S corporation shareholders are also eligible for special tax treatment for similar charitable contributions of their businesses.
Other provisions in the new law include:
- Investments in recycling: Fast casual restaurants and other businesses can claim accelerated depreciation for purchases of equipment used to collect, distribute or recycle a variety of commodities.
- Disaster relief: The new law provides increased tax relief for victims of Midwestern storms, Hurricane Ike and several other natural disasters. Relief includes increased first-year write-offs for cleanup and enhanced deductions for some property. Many of the provisions are similar to those enacted for Hurricanes Katrina, Rita and Wilma.
Finally, it should be noted that under Congressional rules, the bill's tax savings were computed over a 10-year period for budgetary purposes. Fortunately, the lion's share of that expected outlay occurs in the 2008 and 2009 tax years. Consequently, tax planning takes on a special urgency for every fast casual restaurant owner or operator wanting to fully benefit from the $150 billion of new and, in many cases, temporary, tax breaks.
