As hospitality property owners and managers do business throughout 2009, they should keep in mind these tax tips that can possibly minimize tax exposure.
As hospitality property owners and managers do business throughout 2009, they should keep in mind these tax tips that can possibly minimize tax exposure.
1. Nail down 'bonus' depreciation deductions. Many companies in the hospitality industry made investments eligible for bonus depreciation deductions that were revived for 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. Take advantage of qualified restaurant improvement property extension. The 2008 Economic Stimulus bill extends the 15-year depreciable life (as opposed to 39 year) for qualified restaurant improvement property to items placed in service before Jan. 1, 2010. Qualified restaurant property is specifically excluded from the bonus depreciation rules.
3. Consider the betterment opportunity. Under section 263(a), there is an opportunity to allow costs incurred to change the layout and appearance of a retail space to be deducted in the year incurred, rather than capitalized and recovered through depreciation.
4. Review deferred compensation plans. It's imperative to check with your tax advisers to make sure that any arrangement that calls for compensation earned in one year and paid in a later year has been modified to conform with complex new rules. These rules, originally enacted in 2005, became final at the end of 2008 and extend to deferred compensation plans, phantom stock and stock option plans, as well as some severance agreements, bonus plans and offers of employment. Failure to comply with the rules will result in significant penalties, including a 20 percent additional tax on individuals covered by the plans.
5. Review your state filing requirements. Many states are changing their corporate tax laws. For example, in tax years beginning in 2008, Michigan has changed its Single Business Tax (an income tax with various adjustments) to a hybrid income and margin tax, and has moved from separate entity reporting to unitary combined group reporting. In 2009, West Virginia and Massachusetts will also move to a unitary combined group reporting system. Also, several states recently have been moving from an apportionment formula based on property, payroll and sales factors to an apportionment formula that more heavily weights the sales factor. In some states, a single sales factor apportionment method is now used. This shift in methodology may have a significant impact on your state tax liability.
'These tax tips can help hospitality organizations conserve cash in the tough economic environment,' said Joshua Bushard, Grant Thornton LLP's national Hospitality practice leader. 'Consult your tax advisor to learn how these ideas can apply to your business.'
Grant Thornton's Construction Real Estate and Hospitality group has developed 10 tax tips for hospitality property owners and managers. To read all of the tax tips, go to www.GrantThornton.com/CRHtaxtips or email CRH@gt.com.
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