Wednesday, February 25, 2009

Business Provisions of The American Recovery and Reinvestment Act of 2009

First, a little backwards thinking. I know you’ve heard a lot about how tax cuts stimulate spending. I suspect you’ve heard little or nothing about how taxes, in and of themselves, encourage businesses to spend money. For example, a sole proprietor in the 25% tax bracket, in a high income state like California can expect an approximate 50% discount, via the tax deduction, for anything they spend on qualified business expenses. Yes, the expenses have to be reasonable or necessary, but knowing that you will get almost half of it back at tax time (or sooner, if you adjust your estimated tax payments), can make a new computer (or a new employee) much more appealing (and doable).

Speaking of estimated taxes:
Individuals with an adjusted gross income under $500,000, who can certify that at least 50% of their income reported the previous year was from a small business are now required to pay estimated tax payments based on 90% of the previous years taxes (rather than 100%). As always, if your 2009 taxable income is looking lower than 2008, you can still base your estimated taxes on your projected 2009 taxes instead of your 2008 actual taxes.

Speaking of new employees:
Disabled veterans and “disconnected youth” have been added to the classes of employees that may qualify their employers for the Work Opportunity Tax Credit.

Speaking of new computers (or other tangible assets):
Generally, the expense of fixed assets (assets expected to have a life of one year or more), is claimed over the lifetime of the asset via depreciation, rather than in the year they are purchased and/or put into service. The 2008 Economic Stimulus Act brought back bonus depreciation, allowing businesses to deduct 50% of the cost of new assets in the year of purchase, and then deduct the balance via depreciation over the first and remaining years of the assets expected life.

The 2009 Act extends bonus depreciation through 2010. The act also increased the amount that can be expensed (claimed) in the year of purchase under section 179, and the amount of depreciation that can be claimed for vehicles was also increased. The act also extended the opportunity for qualifying businesses can also take accumulated AMT and business credits in lieu of bonus depreciation through 2010.

And yes, there’s more. The 2009 act also has provisions that allow qualifying business to:
Recognizing cancellation of debt over 5 years
Carry net operating losses back 5 years
Shorten the S-corp built-in gain period

And more – as always, contact us if you have questions about how any provision of this act will affect your tax situation.

No comments: