.bodytext {float: left; } .floatimg-left-hort { float:left; margin-top:10px; margin-right: 10px; width:300px; clear:left;} .floatimg-left-caption-hort { float:left; margin-bottom:10px; width:300px; margin-right:10px; clear:left;} .floatimg-left-vert { float:left; margin-top:10px; margin-right:15px; width:200px;} .floatimg-left-caption-vert { float:left; margin-right:10px; margin-bottom:10px; font-size: 10px; width:200px;} .floatimg-right-hort { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 300px;} .floatimg-right-caption-hort { float:left; margin-right:10px; margin-bottom:10px; width: 300px; font-size: 10px; } .floatimg-right-vert { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px;} .floatimg-right-caption-vert { float:left; margin-right:10px; margin-bottom:10px; width: 200px; font-size: 10px; } .floatimgright-sidebar { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px; border-top-style: double; border-top-color: black; border-bottom-style: double; border-bottom-color: black;} .floatimgright-sidebar p { line-height: 115%; text-indent: 10px; } .floatimgright-sidebar h4 { font-variant:small-caps; } .pullquote { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 150px; background: url(http://www.dmbusinessdaily.com/DAILY/editorial/extras/closequote.gif) no-repeat bottom right !important ; line-height: 150%; font-size: 125%; border-top: 1px solid; border-bottom: 1px solid;} .floatvidleft { float:left; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} .floatvidright { float:right; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} Business owners should consider what the 2008 presidential election could mean for future tax rates before they close the books on 2007, according to a local tax professional.

“A change of political party in the White House would probably mean higher tax rates in the future for capital gains and dividend income,” said Stephen Koehn, a member of Meriwether, Wilson and Co. PLC, a West Des Moines certified public accounting firm. “So it may make sense to recognize capital gains before the rates go up, rather than using traditional strategies of deferring gains using like-kind exchanges or installment sales.” Capital gains are currently taxed at 15 percent, but could increase to as much as 25 percent, he said.

“Also if you want to get retained earnings out of your C corporation, it makes sense to do it at today’s favorable 15 percent rate on dividends,” Koehn said. “A White House change could mean the dividend rate may lose its favorable rate.”

Overall, business owners won’t have many changes to worry about this tax year. The few changes to consider, Koehn said, can be found in the Small Business and Work Opportunity Tax Act of 2007. Passed by Congress in May, the legislation provides nearly $5 billion in tax incentives, primarily to small businesses, to help businesses cope with higher expenses related to the increased minimum wage.

Under that legislation, small businesses will be able to deduct up to $125,000 in equipment costs, up from $112,000 in 2006, with a phase-out threshold of $500,000.

“I really don’t want them buying stuff just for a tax deduction,” Koehn said. “But if they were going to buy it anyway next year, it may make sense to accelerate it and buy it this year.”

The legislation also provides a tip credit calculation that’s based on the old $5.15 minimum wage, which means restaurant owners won’t see their FICA tip credit decrease due to the minimum wage increase. It also expands the Work Opportunity Credit, which now provides a 40 percent credit on the first $6,000 of wages paid for each qualifying employee between the ages of 18 and 39 that is hired, and extends the credit for hiring residents in 29 “rural renewal counties” in Iowa as well.

An often overlooked deduction that business owners should consider is the Section 199 manufacturing deduction, which in 2007 increased to 6 percent of qualifying income from 3 percent, and is scheduled to increase to 9 percent in 2009. Congress also is looking at eliminating the deduction, Koehn said, in part because relatively few businesses have used the complicated set of regulations.

“We have a lot of clients that use it, but people that do their own returns may not pick up on it,” he said.

Another important consideration for businesses is to ensure that any nonqualified deferred compensation plan they have in place is in compliance with the 2005 rules. The Internal Revenue Service recently extended the deadline for businesses to amend their plans to Dec. 31, 2008.

“The penalties are pretty substantial if they’re not (in compliance) – 20 percent of the amount deferred,” Koehn said.

Speaking of penalties, the IRS has increased a number of them that apply to tax preparers, in part to pay for the $5 billion in tax savings it’s passing along to businesses.

“I think the IRS is putting more pressure on tax professionals to police their clients a little more closely to make sure they’re doing things properly,” Koehn said. “They’re increasing preparer penalties, which in effect, forces preparers to be less aggressive.”

There’s also a new accounting standard that requires auditors of businesses to document positions that may have a possibility of not succeeding if challenged by the IRS, which auditors must document in their work papers. “They actually have to assign a probability of the likelihood, if looked at by the tax service, that the taxpayer would prevail,” he said. Companies must accrue liabilities for tax positions that have been assigned a greater than 50 percent likelihood of being overturned if challenged.

The Tax Reduction and Reform Act of 2007, introduced just a couple of weeks ago, includes a number of “extenders,” among them an extension of alternative minimum tax relief for 2007. Koehn said he believes Congress is likely to approve this and other extenders, but it’s unclear whether more sweeping reforms, such as a repeal of the AMT or a reduction in the marginal corporate tax rate, will gain any traction.