Only a few months remain for small businesses to take advantage of tax breaks offered by the American Recovery and Reinvestment Act.
Faster write-offs for capital expenditures
Many small businesses that invest in new property and equipment will be able to write off most or all of the purchases on their 2009 returns. The new law extends through 2009 the special 50 percent depreciation allowance, also known as bonus depreciation, and increased limits on the section 179 deduction, named for the relevant section of the Internal Revenue Code.
Normally, businesses recover these capital investments through annual depreciation deductions spread over several years. Both provisions encourage investments by enabling businesses to write them off more quickly.
The bonus depreciation provision generally enables businesses to deduct half the cost of qualifying property in the year it is placed in service.
The section 179 deduction enables small businesses to deduct up to $250,000 of the cost of machinery, equipment, vehicles, furniture and other qualifying property placed in service during 2009. Without the new law, the limit would have dropped to $133,000. The existing $25,000 limit still applies to sport utility vehicles. A special phase-out provision effectively targets the section 179 deduction to small businesses and generally eliminates it for most large businesses.
Expanded net operating loss carryback
Many small businesses that had expenses exceeding their incomes for 2008 can choose to carry those losses back for up to five years, instead of the usual two.
For small businesses that were profitable in the past but lost money in 2008, this could mean a special tax refund. The option is available for a small business that has no more than an average of $15 million in gross receipts over a three-year period.
This option is still available for most eligible taxpayers, but only for a limited time. A corporation that operates on a calendar-year basis, for example, must file a claim by Sept. 15.
Exclusion of gain on the sale of certain small business stock
The new law provides an extra incentive for those who invest in small businesses. Investors in qualified small business stock can exclude 75 percent of the gain upon sale of the stock.
This increased exclusion applies only if the qualified small business stock is acquired after Feb. 17 and before Jan. 1, 2011, and held for more than five years. For previously-acquired stock, the exclusion rate remains at 50 percent in most cases.
Estimated tax requirement modified
Many individual small business taxpayers may be able to defer paying a larger part of their 2009 tax obligations until the end of the year. For 2009, eligible individuals can make quarterly estimated tax payments equal to 90 percent of their 2009 tax or 90 percent of their 2008 tax, whichever is less.
Individuals qualify if they received more than half of their gross income from their small businesses in 2008 and meet other requirements.
Employers that provide the 65 percent COBRA premium subsidy under ARRA to eligible former employees claim credit for this subsidy on their quarterly or annual employment tax returns. To help avoid imposing an unnecessary cash-flow burden, affected employers can reduce their employment tax deposits by the amount of the credit.