Small Business
Week is May 17 to 23, and the Internal Revenue Service urges small businesses
to act now and take advantage of tax-saving opportunities included in the recovery
law.
The American Recovery and Reinvestment Act (ARRA),
enacted in February, created, extended or expanded a variety of business tax deductions
and credits. Because some of these changes—the bonus depreciation and increased
section 179 deduction, for example—are only available this year, eligible
businesses only have a few months to take action and save on their taxes. Here
is a quick rundown of some of the key provisions.
Faster
Write-Offs for Certain Capital Expenditures
Many small
businesses that invest in new property and equipment will be able to write off
most or all of these 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 of these
provisions encourage these 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 larger businesses.
Bonus depreciation and the
section 179 deduction are claimed on Form 4562. Further details are in the instructions
for this form.
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, 2009. For eligible individuals,
the deadline is Oct. 15, 2009.
Eligible individuals should
file a claim using Form 1045, and corporations should use Form 1139. Details can
be found in the instructions for each of these forms, and answers to frequently-asked
questions are posted on IRS.gov.
Exclusion of Gain on
the Sale of Certain Small Business Stock
The new law
provides an extra incentive for individuals 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, 2009 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, until the end of the year, paying a larger part of their 2009
tax obligations. 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.
For details, see Publication 505.
COBRA Credit
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.
For details, see Form 941. Answers to frequently-asked questions are posted on
IRS.gov.
Other ARRA business provisions relate to discharges
of certain business indebtedness, the holding period for S corporation built-in
gains and acceleration of certain business credits for corporations. Also see
Fact Sheet FS-2009-11.
