As the owner of a ski resort or a ski related business, you may want to miss the deadlines for filing your annual income tax returns, if you have not already done so. The reason: the Tax Relief and Health Care Act of 2006. Passed late in December, this bill extended, simplified and even created tax deductions and write-offs that are not on the tax return forms.

All told, the extension of expiring and expired tax breaks, along with several new tax provisions, are expected to save taxpayers a whopping $38 billion over the next five years. While there is nothing earth-shattering in the new legislation, the fact that it was passed so late in the year has thrown both the Internal Revenue Service and tax professionals into a tizzy.

Every resort and ski business operator, regardless of whether the annual tax returns have already been filed, whether they took advantage of the automatic extension of time for filing those tax returns, or whether they or their tax advisers are in the process of preparing those income tax returns, should review these tax breaks. Among those likely to be of most interest to owners and operators of mountain resorts and ski-related businesses:


Improving Leased Property

The new tax bill extended deadlines for taking advantage of a 15-year write-off period for so-called “leasehold improvements” and restaurant property. But you can take advantage of this extension only if you act before the end of 2007. Generally, when leased property or a restaurant is improved, the cost of those improvements is depreciated over the same period as the improved property—39 years.


Energy-Efficient Buildings

Today, the buildings utilized by ski resorts and businesses have one thing in common: high energy bills. Our lawmakers came to the rescue by devising a unique write-off for the owners of commercial buildings. The new law extends that benefit until January 1, 2008.

Under the energy tax write-off, qualifying taxpayers may deduct costs associated with energy-efficient commercial building property. There is no official definition of “energy efficient commercial building property.” Rather, a provision in the new law extends for one year a deduction for expenditures by resort operators to help their commercial buildings reduce annual energy and power consumption by 50 percent compared to the American Society of Heating Refrigerating and Air Conditioning Engineers (ASHRAE) standard.

The deduction equals the cost of energy efficient property installed during construction, with a maximum deduction of $1.80 per square foot of the building. In addition, a partial deduction of 60 cents per square foot is available to offset the cost of the building’s subsystems.

In order to qualify for the write-off, the “property” acquired to help make the building more energy efficient must have been placed in service between Dec. 31, 2005, and before Jan. 1, 2008. The next law extends the write-off for equipment or “property” acquired to make commercial buildings more energy-efficient to expenditures made before Jan. 1, 2009.

There were also a number of other energy incentives impacted by the new law. Provisions in the new law extend the credit for businesses that install qualified fuel cells, stationary micro turbine power plants or solar panels. Specifically extended is a 30 percent business energy credit for purchase of qualified fuel cell power plants for businesses, and a 10 percent credit for purchase of qualifying stationary microturbine power plants. A 30 percent credit for purchase of qualifying solar energy property has also been extended.


Work Opportunity And Welfare-To-Work Tax Credits

How much the Work Opportunity (WO) and Welfare-to-Work (WTW) tax credits can help resort operators who usually rely on seasonal help may be questionable. The new law, however, retroactively renews both credits for 2006 and covers new hires in 2007.

The credits continue to target nine specific groups of economically-challenged individuals. For most of the targeted groups, the credit is equal to 40 percent of qualified first-year wages (25 percent if employment is more than 120 hours but less than 400 hours). Qualified first year wages cannot exceed $6,000. That means a tax credit, a direct reduction in the resort operation’s tax bill, of as much as $2,400 per employee.


New Markets Tax Credit

A few resort operators have, in recent years, benefited from a unique financial incentive program, the New Markets Tax Credit. Under the New Markets Tax Credit program, investors receive a credit against federal income taxes for making qualified equity investments in economically-distressed communities. The new law extends the credit through the end of 2008, and requires that non-metropolitan counties receive a proportional allocation of qualified equity investments.


Health Savings Accounts

Many business owners have, in recent years, discovered the cost-effectiveness of so-called health savings accounts, or HSAs. They can be an excellent tax-favored fringe benefit.

Contributions to HSAs are tax deductible, whether made by the individual or a business. HSAs enable anyone with high-deductible health insurance to make pre-tax contributions equal to the lesser of the annual deductible or $2,700 for self-coverage ($5,460 for families) in 2006 to cover health care costs.

Unlike an IRA, amounts paid or distributed out of an HSA used exclusively to pay qualified medical expenses are not includable in gross income. And, best of all, the HSA enhancements have been made permanent, with most taking effect for tax years beginning after 2006.

Those resort and business owners with tax favored IRAs are allowed a one-time, once-in-a-lifetime, rollover of funds from their IRAs into an HSA. The change is designed to give those with IRAs quicker access to their funds for medical expenses; this should spur interest in HSAs. The election to make the rollover is irrevocable and the new rules apply to tax years beginning after Dec. 31, 2006.


Frivolous Taxes

The IRS has had its arsenal of weapons for fighting the “tax gap”—the difference between taxes owed and the amount of taxes actually paid—strengthened and increased. Under Congressional pressure to close the tax gap, the IRS can continue to use the proceeds from its undercover operations to pay additional expenses incurred in those investigations.

Thanks to the new law, it has become more expensive to file so-called “frivolous” tax returns. The penalty has increased from $500 to $5,000, and the law covers all types of federal taxes.


After The Fact

The extenders bill passed after the IRS had printed its 2006 tax year materials, and the IRS has not revised those forms. The IRS’s program to explain how to claim the retroactively resuscitated tax breaks employs a variety of media, including www.irs.gov.

Fortunately, the tax laws permit automatic extensions of time in which to file income tax returns—but not the taxes due. Thus, unlike the IRS, every resort and ski business owner as well as their tax advisors should have adequate time to digest the contents of the latest tax law changes to our income tax laws. And remember, if you’ve already filed your taxes, our tax laws allow you to correct errors and omissions and claim those extended breaks.