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The Stimulus' Key Small Business Tax Provisions

By KAREN E. KLEIN, BUSINESSWEEK
Posted: 2009-03-02 19:01:46
Filed Under: Small Business, Small Business Taxes, Small Business Funding
BusinessWeek

Money

Experts who are in the process of familiarizing themselves with the new law explain how it will benefit small companies in terms of tax relief.

The stimulus bill signed into law by President Barack Obama on Feb. 17, formally known as the American Recovery & Reinvestment Act, provides $288 billion in tax relief to individuals and companies. But how much of that will benefit small business owners -- and how? You can read the 407-page law posted online, but we wonder how many members of Congress managed that. Instead, columnist Karen E. Klein has made things a bit easier by highlighting the law's most important tax provisions applying specifically to small firms. Bear in mind, these changes only apply to federal tax liability, not state.

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    Net Operating Loss Carryback. The law will extend the "carryback" period for net operating losses generated by small companies from two years to five. This means that if your company lost money in 2008, but paid taxes on profits sometime in the past five years, you can apply last year's loss to prior-year taxes -- and potentially get a refund on taxes you paid in the past. The provision was initially drafted to apply to all companies except for financial institutions, but its scope was narrowed considerably during the bill's final negotiations. It now applies only to 2008 and to companies with less than $15 million in annual sales, says Chris Hunter, an attorney with Morgan Miller Blair in Walnut Creek, Calif. If you've already filed your 2008 tax return, you can amend it to take advantage of the carryback provision.

    Equipment Deductions and Depreciation. The Section 179 tax deduction allows small businesses to immediately expense new equipment or machinery. In 2009, thanks to the stimulus legislation, the maximum deduction will be $250,000. (It had been scheduled to decrease to $133,000). In order to tailor this benefit for smaller companies, there is an upper expenditure limit on the deduction.

    The law also includes an extension of the existing bonus depreciation provision, which allows businesses to immediately deduct half of the cost of qualifying purchases rather than depreciating them over time. If you purchase qualified tangible assets (which can range from computers to manufacturing equipment but not real estate) in 2009, your company needs to start using them in 2009 to take advantage of this provision, says Tim Speiss, partner in charge of the personal wealth advisory group at Eisner, a Manhattan accounting firm.

    Making Work Pay Tax Credit. This tax cut refunds a maximum of $400 to single filers making less than $75,000 and $800 to married couples filing jointly and making less than $150,000. Those who qualify will see the amount deducted from their paychecks. Self-employed business owners, even though they don't get paychecks, should talk to their accountants about taking advantage of this one. They may be able to reduce their quarterly payments of estimated tax to reflect the tax cut, or pay the full estimated tax and wait get back money at the end of the year, Hunter says.

    Holding Period for S-Corporations. This provision temporarily shortens the holding period of S-corp assets that can be sold without tax on built-in gains. (Business owners can choose to sell either the stock or the assets of their corporations, depending on a complex formula of taxation treatment.) A built-in gain is the difference between the fair market value of the assets and their tax basis at the time an S-corp election was made.

    This provision shortens the period from 10 to seven years for sales occurring in 2009 and 2010, says Dave Shantz, CPA with accounting firm CBIZ's San Diego office. It applies to profitable Subchapter C-corps that have elected to be taxed under S-corp rules. Many C-corp owners become S-corps, to eliminate double taxation and for other reasons, he says.

    By reducing the holding period to seven years, this provision will allow many business owners to retire earlier without facing two layers of taxation on their business assets, Shantz says. "For companies that have highly appreciated assets, they'll be able to sell earlier and get much better tax treatment than before. We're going to have many clients selling three years earlier than they thought possible," he says.

    Karen E. Klein is a Los Angeles-based writer who covers entrepreneurship and small-business issues.

    2009-03-02 18:19:54
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    109 comments

    xypexcrw 07:16:50 AM Nov 05 2009

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    cheat...figure out how much the government is worth to you, and adjust how much of your income you want to declare. Underreporting is the only way to evade taxes. We have big bullseyes painted on us. We make enough to be taxed from every damn direction for every asinine reason, but not enough to drag lawyers into court and file motions for months. Governments count on compliance, there is no way in hell they could begin to drag even 3 per cent of small business owners into tax courts. They would choke on court jams, lack of prosecutors, and demands for trials.

    sakhir 10:33:05 AM Oct 03 2009

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    is this your problem . then help one person a day. Teach hin to a could feed his family. or live your own life.

    xpriori 10:25:34 AM Sep 28 2009

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    USA is suffering from Capital shortages, will continue forever since Tax Policydoes little or nothing to incentivize investments and saving. So small businessis having a tuff go of it, big business is moving where the Capital is.............China and the Mid-East.

    jandjcrawford39 08:28:18 PM Sep 12 2009

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    I HAVE A SMALL BUSINESS....JUST ME NOW........WHERE IS ALL THE HELP FOR SMALL BUSINESS'S.......YOUR ACCOUNTANTS AND TAX PEOPLE OH IT''S TOO BIG OF A PROBLEM TO GET HELP ......NOT WORTH THE TIME OR MONEY TO FIGHT BIG GOOOOOOOOVVVVVVVVVMENT.....IT SUCKS IF YOU CAN AFFORD TO FIGHT FOR IT .....YOU PROBABLY DON'T NEED IT.!!!!!!!!!

    tony1pocket 08:36:28 AM Sep 09 2009

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    Were is my help for the boating industry? Is it because of the myth that if you have a boat you must be a rich.The boating industry is suffering.It does employ builders,sales people,wood workers,electricians,and the list goes on. My buisness is down 70%.

    nch24 10:35:46 AM Jul 09 2009

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    Just like our STUPID SH_T GOVERENMENTWhat good is a 250,000 deduction on new equipment purchasesif you are struggling every week to meet Payroll,Pay rediculously high health insurance costs,Payroll taxes that cripple. And God forbidyou miss a deadline for submitting a payroll withholdingand the IRS transforms into the GESTAPO50 Billion for GM, 100 Billion for AIG but ifAlex Grocery falls behind and owes 1500 in payroll taxesThey get persecuted like their Serrial CriminalsWE GOT TO TAKE BACK OUR COUNTRY

    grnrmyeyes1210 01:25:04 PM Apr 29 2009

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    I really enjoy reading everyone comments THXS

    bikinijim 10:53:41 PM Mar 13 2009

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    How can I get help from a government who throws good money after bad for big corps to blow on their CEO bennies. I have a mom and pop business here in Key West that tries to sell American made products while trying to compete with crap made in China. That all the other busineses here sell. Why don't we all just close all our American Mfg. and just sell the junk products they sell. That way we can all try to live on the retirement that the government supplies instead of a pension from an American company that cares about its employees.

    smlresources 02:42:17 PM Mar 13 2009

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    Besides the tax relief what small businesses also need is relief from the ever increasing cost of health care. The simplest way to stimulate the economy is to give small businesses direct reductions in payroll tax and health care costs. These two items are the most important reasons why small business employers let go of their employees and as we all know about 3 out every 4 jobs in our economy are generated by small business owners.Vivek Lhttp://www.smallbusinessplanresources.comEn Espanolhttp://www.smallbusinessplanresources.com/spanish/index-spanish.php

    neonicon46 05:48:48 PM Mar 12 2009

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    richardkittyhawkBig business is what got us in this mess.Small business is what America was uilt onuntil the fact cats began DE- regulatiing everythinhg except their own spending habits. Give the bailout money to SBA to teach people how to be self-sufficient instead of having to rely on employers that don't want to pay salaries sufficient to live on,benefits that ar no more than preventive maintainance for humans until they are too old,sick or weak to work have their meds cut off and die agonizing death. The Mom and Pop grocers keep neiborhoods alive and bring people togethjer. They also circulate money. Big business makes products or buys products overseas and hoards the profits. I am not against fair market if its faqir to all Americans. I am not against capitalism if all Americans are allowed to be capitalist and not treated like colonists or subjects or commrads.

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