New Tax Breaks for 2008

Column by Barbara Weltman

As a result of tax law changes and cost–of–living adjustments to existing rules, there are a number of important new tax opportunities for small businesses in 2009. Here are some areas from which you may benefit:

Retirement savings

You can save more money in 2009 through retirement plans than ever before. The dollar limits on contributions and benefits to all types of plans have increased. The following table shows the maximum limits for different types of qualified plans:

Your age by the end of 2009	SIMPLE (salary–reduction contributions)*	SEP	401(k) (salary–reduction contributions)*
Under age 50	$11,500	$49,000	$16,500
Age 50 or older	$14,000	$49,000	$22,000

*Retirement savings are increased by employer contributions. For example, in a 401(k) plan with a maximum employer contribution for someone age 50 or older, the top savings in 2009 is $54,500.

If your company has a 401(k) plan, you can amend it to accept Roth 401(k) contributions, which are after–tax contributions used to build up tax–free retirement income. The contribution limit for Roth 401(k)s is the same as for traditional 401(k)s. Unlike Roth IRAs, there is no income limitation on contributors to Roth 401(k)s.

Important: If you own a small business and have employees, you usually must make contributions on their behalf on a nondiscriminatory basis, a cost factor to consider in deciding which type of retirement plan to select.

Note: Eligibility to contribute to a personal traditional or Roth IRA is eased in 2009. The modified adjusted gross income (MAGI) limits for active participants to contribute to an IRA have been raised, along with the MAGI limits on the ability to fund a Roth IRA. The contribution amount for IRAs remains at $5,000, or $6,000 for those age 50 or older by the end of 2009.

Health care coverage

Health savings accounts (HSAs), which were introduced in the tax law in 2004, continue to grow in popularity as a way for small businesses to provide affordable health coverage. They combine a high–deductible health plan (HDHP) with a savings account designed to cover out–of–pocket medical expenses. For 2009, an HDHP is medical insurance with a deductible of at least $1,150 for self–only coverage and $2,300 for family coverage. Contributions made to the HSA are tax deductible in 2009 up to $3,000 for self–only coverage and $5,950 for family coverage. And those at least age 55 by year-end can add $1,000 more. These contribution limits are higher than amounts permitted in 2008. For more information on finding HDHPs in your state, go to www.hsainsider.com.

Car usage

Small business owners who drive their personal car for business can opt to deduct their actual expenses or rely on a standard mileage rate. This optional rate can be used for vehicles that are owned or leased. But relying on the standard rate does not relieve owners of the need to track the number of miles driven for business and the purpose of the travel.

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