Of the nearly $800 billion of relief in the American Recovery and Reinvestment Act, signed into law on February 17, 2009 (of which about 35% are tax breaks), only a very small percentage will benefit small business owners. Most of these breaks have a one-year life, making it impossible for owners to plan ahead.
Here are key breaks in the final version of the recovery package:
- Expensing (Sec. 179 deduction)—up to $250,000 for equipment purchased placed in service by December 31, 2009.
- Bonus depreciation—50% of the cost of new property placed in service this year, in addition to any expensing and regular depreciation.
- Net operating loss carryback—a choice of three-, four-, or five years (instead of the usual two-year carryback) for businesses with gross revenue of $15 million or less. This applies only to 2008 losses (another law would be required to extend the longer carryback period for 2009 losses).
- Small business stock—gain from the sale of stock acquired after February 17, 2009, and before January 1, 2011, which is held for at least five years is only 25% includible in income; the other 75% is excluded (the usual exclusion limit is 50% of gain).
- Estimated tax relief—sole proprietors and owners of partnerships, LLCs, and S corporations with adjusted gross income under $500,000 and who derive more than half their gross income from a business with fewer than 500 employees will not have estimated tax penalties in 2009 if they pay at least 90% of the 2008 tax bill through estimated taxes and withholding.
- Work opportunity credit—the group of targeted workers that can qualify an employer for a tax credit has been expanded for 2009 and 2010 to include certain unemployed veterans and unemployed youth who lack certain basic skills.
- Business energy credit—there are several tax credits to encourage investments in renewable energy production and for other alternative energy investments.
Perhaps the biggest change for small businesses is the revision to the withholding tables for 2009 to reflect the new “making work pay credit” for employees. The tables are expected from the IRS late this spring. There may be other obligations on employers to obtain information from workers in order to know if workers are eligible for this credit (those with income above $75,000, or $150,000 for joint filers, have a reduced credit and once income tops $95,000, or $190,000 for joint filers, there’s no credit allowed).
Businesses with more than 20 employees and that offer COBRA health coverage will also need to adapt to new federal subsidy for involuntarily terminated workers after September 1, 2008, through the end of 2009. The federal government will pay 65% of premiums for these former employees and the payments will be made via a reduction in an employer’s payroll taxes (with some credit if the subsidy exceeds payroll taxes).