Stimulus & You: Small Business Tax Breaks

President Barack Obama will sign the $787 billion federal stimulus package into law in Denver on Tuesday. The legislation includes billions of dollars in spending on items including infrastructure, education, tax breaks for individuals and businesses, help for unemployed workers and aid for state governments.

Below is a snapshot of some of the small business tax breaks included in the Stimulus bill:

  • Extension of Accelerated Depreciation

    Businesses are allowed to recover the cost of capital expenditures over time according to a depreciation schedule. Last year, Congress temporarily allowed businesses to recover the costs of capital expenditures made in 2008 faster than the ordinary depreciation schedule would allow by permitting these businesses to immediately write-off fifty percent of the cost of depreciable property (e.g., equipment, tractors, wind turbines, solar panels, and computers) acquired in 2008 for use in the United States.

    How you might benefit: The bill would extend this temporary benefit for capital expenditures incurred in 2009. PBA previously reported on how the salon industry can take advantage of this provision. Click here to see a detailed example.

  • Extension of Enhanced Small Business Expensing

    In order to help small businesses quickly recover the cost of certain capital expenses, small business taxpayers may elect to write-off the cost of these expenses in the year of acquisition in lieu of recovering these costs over time through depreciation. Until the end of 2010, small business taxpayers are allowed to write-off up to $125,000 (indexed for inflation) of capital expenditures subject to a phase-out once capital expenditures exceed $500,000 (indexed for inflation).

    How you might benefit: Last year, Congress temporarily increased the amount that small businesses could write-off for capital expenditures incurred in 2008 to $250,000 and increased the phase-out threshold for 2008 to $800,000. The bill would extend these temporary increases for capital expenditures incurred in 2009. PBA previously reported on how the salon industry can take advantage of this provision. Click here to see a detailed example.

  • 5-Year Carryback of Net Operating Losses for Small Businesses

    A net operating loss occurs when a taxpayer's business deductions exceed business income. Under current law, net operating losses (“NOLs”) may be carried back to the two taxable years before the year that the loss arises (the “NOL carryback period”) and carried forward to each of the succeeding twenty taxable years after the year that the loss arises. For 2008, the bill would extend the maximum NOL carryback period from two years to five years for small businesses with gross receipts of $15 million or less.

    How you might benefit: The procedure of turning net operating losses into cash is the net operating loss carryback. A carryback is more complicated than a carryover because it involves prior years' tax returns. If a 2008 net operating loss is carried back to 2006, the deduction will decrease the amount of tax due for 2006, and the excess taxes are refunded. The refund puts immediate cash in the hands of the struggling business owner. Unlike a loan, a tax refund does not have to be repaid because it represents an overpayment of tax rather than a liability. In contrast to a carryback, a carryover saves taxes in future years, which does not provide the relief needed immediately. Click here for a more detailed explanation on NOLs.

  • Temporary Small Business Estimated Tax Payment Relief

    The bill reduces the 2009 required estimated tax payments for certain small businesses.
    Under present law, the income tax system is designed to ensure that taxpayers pay taxes throughout the year based on their income and deductions. To the extent that tax is not collected through withholding, taxpayers are required to make quarterly estimated payments of tax. The required annual payment is the lesser of 90% of the tax shown on the return or 100% of the tax shown on the return for the prior taxable year (110% if the adjusted gross income for the preceding year exceeded $150,000).

    How you might benefit: This bill provides that the required annual estimated tax payments (of a qualified individuals) for taxable years beginning in 2009 is not greater than 90 % of the tax liability shown on the tax return for the preceding year.

  • Incentives to Hire Unemployed Veterans and Disconnected Youth

    Under current law, businesses are allowed to claim a work opportunity tax credit equal to 40 percent of the first $6,000 of wages paid to employees of one of nine targeted groups. The bill would create two new targeted groups of prospective employees: (1) unemployed veterans; and (2) disconnected youth.

    How you might benefit: An individual would qualify as an unemployed veteran if they were discharged or released from active duty from the Armed Forces during the five-year period prior to hiring and received unemployment compensation for more than four weeks during the year before being hired. An individual qualifies as a disconnected youth if they are between the ages of 16 and 25 and have not been regularly employed or attended school in the past 6 months. The credit is available to an employer for qualified wages paid to members of all targeted groups. Click here to learn more.

For a more detailed summary of business tax breaks included in the Stimulus bill, please contact Sam Leyvas, PBA's director of government affairs, at 800.468.2274 x3437 or sam@probeauty.org.