Posted: February 18, 2009
What’s in the stimulus package for your small business?
Five key provisions that affect small businessesBy Rick LaFave
Now that President Barack Obama signed the American Recovery and Reinvestment Act (ARRA) into law there is intense speculation on if the stimulus package will lift the economy out of recession. While most of the media attention on the ARRA has centered on infrastructure spending and tax breaks for individuals, you’ve probably seen less information on what the package includes for small businesses.
Small businesses account for 97 percent of all new U.S. jobs, according to the American Small Business League, which pushed for strengthened federal contracting programs for small companies to be part of the bill’s final language. As vital job-creating engines for our economy, small businesses should be aware of several provisions in the ARRA. But it’s crucial to also note that small businesses need to be proactive to benefit from these incentives: The benefits won’t come to you automatically, so it’s a good idea to meet with a knowledgeable tax professional or research the provisions on your own to determine what’s in the stimulus package for your business.
Here are some of the key provisions of the ARRA that affect small businesses:
1. Using current losses to offset profits
Businesses with gross receipts of less than $15 million may be eligible to use current losses to offset profits made during the previous five years (this extended the two-year carry-back law previously in place). Taxpayers may carry a 2008 net operating loss back for three, four or five years. For some businesses struggling through the current downturn, using these losses to offset previous gains could result in substantial tax refunds.
2. Accelerated depreciation rules
Businesses that buy certain equipment may be eligible to speed up the depreciation through this year. Last year, Congress temporarily put in place a depreciation provision that would allow businesses to write off 50 percent of the cost of the depreciable property. The stimulus package extends this benefit through 2009. For companies looking to upgrade equipment, these rules may give them a good reason to do so during 2009.
3. Expensing vs. depreciating
Similar to the depreciation rules, in 2008 Congress temporarily amended Section 179 of the tax code, permitting small businesses to expense up to $250,000 in certain capital expenditures immediately rather than depreciating them over time. Again, for companies looking to make investments in new machinery, equipment, furniture, etc., a smart approach to taxes could deliver major short-term benefits.
4. Making the right hires
The ARRA includes tax credits for businesses that hire employees from one of nine specific groups, such as unemployed veterans or disconnected youth. Small companies are eligible for a tax credit equal to 40 percent of the first $6,000 of wages paid to a qualifying employee. The rules for who constitutes a qualifying employee can be complex.
5. Changes to SBA loans
Loans from the Small Business Administration aren’t relevant for many small businesses, but others should be aware of loosened lending restrictions for SBA-backed loans. The most significant changes are fee reductions in 7(a) loan programs (for start-up and working capital) and 504 loan programs (for real estate and asset-backed loans). The ARRA also calls for increased guarantees for some 7(a) loans, as well as $30 million devoted to a microloan program focusing on businesses with fewer than 10 employees and loans of less than $35,000.
There are also some tax breaks targeted at individuals that would apply to many small business owners, of course – such as the “Making Work Pay” refundable tax credit of up to $400 for working individuals (or $800 for working families). Self-employed individuals should consider whether adjusting their quarterly estimated tax payment would be beneficial. Finally, there may also be tax breaks available for the purchase of a new car or home, and in paying for college tuition.
The ARRA presents opportunities for small businesses to save money through a smarter approach to taxes. But once again, these benefits will not come to you automatically – you have to be proactive about claiming them. If you’re uncertain about your eligibility, a knowledgeable tax professional can help you.
Rick LaFave is a principal with H&R Block Tax & Business Services (formerly Vantive Partners) in Centennial. With 11 offices in the Denver area, H&R Block Tax & Business Services specializes in providing clients with a proactive approach to individual and business tax strategies. Visit www.HRBTaxandBusiness.com for more information.