Tax advisers here say major bills passed by Congress and signed by President Bush this year have provided extensions, and in some cases expansions, of a number of tax breaks for small businesses and individuals—and the coming election could lead to more changes.

The major bills, which will put lots of money in the pockets of businesses and individuals, are the Emergency Economic Stabilization Act of 2008, which was intended to thaw frozen credit markets; the Economic Stimulus Act of 2008, designed to stoke consumer spending; and the Housing and Economic Recovery Act of 2008, passed primarily to address the subprime mortgage problem.

"There are a number of big items that we're seeing with these acts and typical year-end planning items that small businesses should be looking at," says Andrew McDirmid, a partner at Spokane-based McDirmid, Mikkelsen & Secrest PS.

As part of the stimulus act, McDirmid says businesses can deduct as an expense up to $250,000 of purchases of equipment and certain other qualifying assets placed in service in 2008, versus depreciating the value of those assets over time, he says. The $250,000 doubles the deduction amount available in 2007.

Those deductions were increased under Section 179 of the federal tax code, which allows small and midsize businesses to deduct the cost of certain types of equipment. The deduction amount will drop down to $133,000, in 2009, says Chris Hesse, director of taxation for Spokane-based LeMaster Daniels PLLC. If an equipment purchase is planned for early 2009, taxpayers might want to consider making that purchase this year, because of the increased deduction available, Hesse says.

Also part of the stimulus act, businesses can deduct 50 percent of the cost above $250,000 of qualifying assets they buy. McDirmid says that if purchasers don't qualify for Section 179 deductions or don't want to expense qualifying equipment purchases fully, they still can deduct 50 percent bonus depreciation in 2008 for equipment put into service this year.

The stabilization act, or federal "bailout," included multiple extensions of tax breaks benefiting businesses, says Hesse.

One of the most significant breaks for businesses in the rescue measure is a retroactive extension of the research and development credit, which had expired at the end of 2007, Hesse says. The tax credit, which can cover up to 20 percent of qualified R&D spending in excess of a certain amount based on a company's historical activity, has been extended through 2009. Businesses instead can take a so-called "simplified"12 percent tax credit, and 14 percent for 2009, for such expenses exceeding 50 percent of the previous three years average.

The bailout measure also allows businesses to write off over 15 years—rather than 39 years—the costs incurred in completing interior remodel work in nonresidential buildings in 2008, Hesse says.

In addition, the Internal Revenue Service has boosted the standard mileage rate that businesses can deduct for business-related driving of motor vehicles in the second half of 2008. To reflect the cost of driving during that period more accurately, that mileage rate went up to 58.5 cents per mile for all business miles driven from July 1 through Dec. 31 of this year. It's an increase from 50.5 cents a mile, which was in effect for the first six months of 2008.

The rescue measure also extended alternative minimum tax (AMT) relief, and increased exemption amounts to keep many taxpayers from having to pay the AMT, Hesse says. If Congress had not extended the AMT relief to cut down on the tax's reach, about 33 percent of the nation's taxpayers would have been subject to it. With the extension, Hesse says, only about 3 percent are subject to the AMT.

The AMT was enacted years ago to prevent wealthy individuals from taking excessive advantage of tax loopholes, but hasn't been indexed for inflation, so the number of people who are subject to the tax has been increasing.

The 2008 exemption covers married couples who file their tax returns jointly and whose adjusted gross income (AGI) is less than $69,950, married couples who file separately and have AGI of less than $34,975, and single individuals who have AGI of less than $46,200.

The amounts are higher than in 2007, he says, and significantly higher than the exemptions of $45,000, $22,500, and $33,750, respectively, to which the AMT had been scheduled to revert to this year.

In addition, Congress this year extended a deduction for educators, allowing teachers to deduct up to $250 for certain out-of-pocket expenses for their classrooms, Hesse says.

Another provision of the rescue measure is an extension of the sales-tax deduction, he says. Under that provision, federal taxpayers can choose to deduct from their taxable income either the amount they pay in state and local income taxes or in state and local sales taxes. Washington doesn't have an income tax, but the provision allows residents of the state to take an itemized deduction for the sales taxes they pay. Previously, that deduction had expired for 2008.

For taxpayers over 70 1/2 years old, the rescue measure has extended a tax-free donation to qualifying charities of up to $100,000 from required IRA distributions, says McDirmid.

David Green, tax partner at the Spokane office of Seattle-based Moss Adams LLP, says that taxpayers in higher tax brackets should hold off on year-end tax planning until after the November elections, when the new president and Congress will have been chosen.

"The really big new is: What is Congress going to do to us in 2009?" says Green. "The two presidential candidates have decidedly different views on what they want to do with the tax code."

Under Democratic candidate Barack Obama's tax proposals, people in the 33 percent tax bracket would be bumped up to a 36 percent bracket, and people in the 35 percent tax bracket would be moved up to a 39.6 percent bracket, he says.

Republican Sen. John McCain has proposed leaving the two highest brackets where they are, Green says.

If the tax rate is going to be higher, he says, people in the two highest tax brackets should defer deductions into 2009.

He says Obama also is proposing to raise the long-term capital gains tax rate, from 15 percent to perhaps 20 percent.

"If taxpayers are faced with a choice between this year and next year on capital gains, this year may prove to be more attractive because of the known (lower) capital gains tax rate," Green says. "The good news is taxpayers can make their tax-planning decisions after the election."

For people who qualify for installment-sale treatment of capital gains, which allows sellers of capital assets to pay taxes on gains as they receive sale proceeds, it might be best for them to pay the tax up front. By doing so, he says, they might lock in the 2008 capital gains tax rate, and wouldn't have to worry about future capital gains tax rate increases.

Selling securities in the current environment of down markets, however, will involve many other considerations, including whether it's a good idea to sell securities when they've fallen in value and whether it's a good idea to do so to offset other gains by accumulating losses through such sales.

Also, with the financial markets in turmoil, says McDirmid, banks are becoming more cautious about making new loans, so if someone operating a business is going to need a loan, they should begin shopping for it sooner rather than later, McDirmid says.

"If your existing business loan or line of credit is maturing, ensure you revisit your loan covenants and are proactive with your bank to ensure the loan will be renewed," he says. "If you were not required to give a personal guarantee, brace yourself; your bank may be asking for one."