Business Provisions – 2009 Economic Stimulus Act

March 9th, 2009

On February 17, President Obama signed into law the “American Recovery and Reinvestment Act of 2009” (the 2009 Economic Stimulus Act).  This new legislation was passed to aid our ailing economy and includes a wide variety of tax provisions, many of which will affect small businesses.  Included below are highlights of the more prominent provisions.  Please call our office for details on how the new changes may affect you.
Bonus Depreciation Extended – 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 50% 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.  This temporary provision has been extended through 2009.

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.  This is commonly referred to as the Sec. 179 deduction.  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).  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.  Those increased amounts have been extended to 2009.

Five-Year Carryback of Net Operating Losses – 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 NOLs for any tax year beginning or ending in 2008, the bill extends the maximum NOL carryback period from two years to five years for small businesses with gross receipts of $15 million or less.

Work Opportunity Credit – This provision provides a credit to an employer for qualified wages paid to members of targeted groups.  The credit, except for long-term family assistance recipients and summer youth employees, equals 40% (25% for employment of 400 hours or less) of qualified first-year wages ($6,000 cap) for a maximum credit of $2,400.  For employment beginning in 2009 and 2010, wages paid to two new targeted groups – unemployed veterans and disconnected youth – count towards the credit.

An individual will 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, served on active duty for more than 180 days or was released from active duty due to a service-connected disability, and received unemployment compensation for not less 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.

S Corp Built-In Gain Holding Period Shortened Temporarily to Seven Years – Under current law, if a taxable corporation converts into an S corporation, the conversion is not a taxable event.  However, following such a conversion, an S corporation must hold its assets for ten years in order to avoid a tax on any built-in gains that existed at the time of the conversion.  The bill temporarily reduces this holding period from ten to seven years for sales occurring in 2009 and 2010.

Repeal of Treasury Section 382 Notice – Last year, the Treasury Department issued Notice 2008-83, which liberalized rules in the tax code that are intended to prevent taxpayers that acquire companies from claiming losses that were incurred by the acquired company prior to the taxpayer’s ownership of the company.  The bill would repeal this Notice prospectively.

Vehicle 50% Bonus Depreciation – Some years ago, to prevent higher-income taxpayers from creating large tax writes-offs from expensive vehicles, Congress implemented the “Luxury Auto Limitations,” which places a cap on first-year depreciation.  The provision that extends the 50% first-year bonus depreciation to 2009 purchases (mentioned elsewhere in this article) also extends the increased dollar cap for new vehicles placed in service in 2009 by $8,000. The regular luxury auto depreciation caps for 2009 have not yet been announced by the IRS. For 2008 the regular cap was $2,960 but was increased to $10,960 when the 50% bonus depreciation was claimed. The 2009 amount will likely be similar.

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