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Veterinary Forum March 2009 (Vol 26, No 3)

Business Skills — The rescue package, taxes and you

by Tina Oh, Louis Gatto, CPA

    Editor's Note: Tina Oh and Louis Gatto let us know how the economic rescue package may affect you as a practice owner. This column discusses both individual and business tax incentives, as well as revenue raisers and potential future incentives. — Stephen Fisher, DVM, Column Editor

    Last October, President Bush signed the Emergency Economic Stabilization Act of 2008, a $700 billion financial rescue package designed to help restore confidence in Wall Street. The package came with one of the largest tax provisions in recent history, providing an estimated $150 billion in business and individual tax incentives. To help pay for a portion of these tax incentives, Congress has added "revenue raisers" — also known as tax increases — to the rescue package.

    Business tax incentives

    The rescue package has shortened the period for qualifying leasehold improvement from 39 years to 15 years. This special treatment is temporary — it lasts through Dec. 31, 2009 — so the timing of these improvements is critical.

    Congress has extended the research tax credit for business. This credit is available for qualifying research expenses, including wages. The act also gives incentives for smaller firms to use the research credit to extend their business by increasing their alternative simplified research credit to 14%.

    Tax incentives for individuals

    There is good news for taxpayers who are subject to the alternative minimum tax (AMT) under the rescue package. AMT was created by Congress to ensure that wealthy individuals pay their fair portion of taxes. The flaw in this tax regulation is that it has never been indexed for inflation, meaning that the middle class has been trapped under this tax policy for some time.

    To reduce the impact of AMT on middle-class families, Congress has passed a "patch" each year to increase the AMT exemption amounts. For 2008, the AMT exemption amount is $69,950 for surviving spouses and married couples filing jointly, $46,200 for single individuals and heads of household and $34,975 for married couples filing separately. The 2008 AMT patch also allows individuals to use nonrefundable personal credits to reduce their AMT liability. Many are hopeful that this year Congress will finally search for a permanent solution and pass AMT reform instead of another patch.

    The rescue package also heightens the child tax credit by lowering the income floor from $12,050 to $8,500. This means that up to 15% of a taxpayer's earned income in excess of $8,500 will be refundable.

    The Mortgage Forgiveness Debt Relief Act of 2007 has been extended through 2012. This act excludes forgiven mortgage debt from taxable income — usually a result of foreclosure. The balance of the loan must be less than $2 million and cannot include home equity loans.

    Also under the new law, the above-the-line deduction of qualifying higher education tuition expenses has been extended. The maximum deduction can be from $2,000 to $4,000, depending on the taxpayer's income.

    Congress also authorized a maximum $500 additional standard deduction ($1,000 for married couples filing jointly) for real property taxes paid for tax years 2008 and 2009.

    Revenue raisers

    To help pay for these tax incentives, Congress included several revenue raisers. Starting in 2011, the rescue package requires brokers to report the adjusted basis of publicly traded securities and to indicate the securities holding period (short-term or long-term). Securities include stocks, bonds, debentures, commodities, derivatives and other financial notes issued by the Treasury.

    Another revenue raiser is the extension of the 0.2% Federal Unemployment Tax Act (FUTA) through 2009.

    Many of the tax incentives under the Emergency Economic Stabilization Act of 2008 are commonly known as "extenders." The act extends a number of popular tax credits that individuals and businesses may have believed to be permanent. In fact, they are still temporary and in many cases have been renewed regularly. Therefore, these tax incentives can make tax planning challenging because the credit or deduction can give the taxpayer the option to use it within 1 year, but not in the future.

    On the one hand, the federal government is trying to spur the economy, but on the other, it is trying to raise revenue for new incentive programs. We will know more about the state of things to come over the next few months. Unfortunately, there are not a lot of tax incentives available for a practice owner who wishes to invest in his or her business.

    About the Column Editor

    Stephen Fisher, DVM, is vice president of business development at VCA Antech and primarily works on national vendor contracts and vendor relations. He is also a member of the Veterinary Forum Editorial Board.

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