Tax Law: Credit for R & D;
Expenses Will Aid Local
High-Tech Biotech Firms
BY ARTHUR S. GRUPE
Businesspeople who take the home office deduction and companies that do research and development will benefit from the recent tax changes, two local certified public accountants said.
“The IRS has loosened the requirements to claim the (home office) deduction, so I think many more people will be eligible to sustain a deduction,” said Larry McLeland, a partner in the San Diego CPA firm of Tychsen & McLeland.
The law change affects 1999 tax returns as well as those for the current year, he said.
Before the passage of a tax reform measure in 1998, a home office had to be used as a primary business address where customers were met, he said. Taxpayers were not allowed to have an office in another location either, he added.
“It used to be when you put down a home office deduction, you were just running up a red flag for the IRS to come and examine your return,” McLeland said. “I have a number of clients in the past who were eligible for the deduction but didn’t want to take it because they just knew the IRS would come after them.”
Based on recent conversations with IRS officials, McLeland said the federal legislation approved in 1998 to make the agency kinder and gentler appears to have worked.
He also anticipates tax law changes after the November election as well, but is uncertain in what areas they could come.
“No matter what they say, it’s not going to get any simpler or any easier to deal with the tax laws,” McLeland said.
James West of the San Diego CPA firm of West & Associates said an extension of a tax credit for 1999 for research and development expenses will help many local high-tech and biotech companies.
“The credit is 20 percent of the qualified research expenses for the current year over a base period amount,” West said.
The welfare-to-work tax credit for employers who hire welfare recipients has also been extended from July 1999 to December 2001, West said.
The credit is 35 percent of the employee’s first-year wages, plus 50 percent of the second-year wages. However, the credit applies only to the first $10,000 of wages and the maximum credit is $8,500 for two years.
One major law that will affect financial organizations that lend money will be the extension of the requirement that they report to the IRS whenever a debt is canceled or written off, West said.
Debt relief is regarded as income to the debtor, he explained. The lender is also required to notify the debtor.
Another tax law that allows commercial building owners to write off the entire expense of removing hazardous materials from their buildings in the year the work is done has been continued to the end of 2001, West said.