2009 Stimulus Highlights for Small Business

Small Business Net Operating Loss CarryBacks

Did your small business have a net operating loss for 2008?  If so, you are now able to carry back the loss for five years (previously only two years).  If your average income is $15 million or less for 2006, 2007, and 2008- you can amend your last fives years of tax returns to get a refund of taxes you paid in prior years.  Start with your 2003 tax year first and then amend your returns for 2004 through 2007.  This election to carryback the loss is irrevocable.  For more information, visit www.irs.govand search for “ARRA Section 1211 5 year net operating loss carryback”.

Deducting Equipment Purchases

You can deduct the cost of equipment purchased during 2008 and 2009, rather than depreciating equipment over the prescribed useful life of the asset.  This deduction applies only in the year of purchase, and is up  to $250,000 worth of those assets purchased.  To be eligible, you must have a profit or break even on your 2009 tax return after taking this deduction.   In other words, if you purchased $100,000 of equipment and only have $50,000 in income, you would deduct $50,000 in the current year and depreciate the remaining $50,000 in future years.  The deduction does not apply to real property (real estate or building improvements), and the new law does not alter the limitation of $25,000 on sports utility vehicles.  For more information, visit www.irs.govand search for “net operating loss carryback Sec 179 deduction and other ARRA business provisions”.

Bonus Depreciation for New Assets

In addition to the $250,000 write off of business assets described above, small businesses are also allowed to write off an additional 50% of any remaining cost of most new assets in the year of purchase.  Again, this does not apply to real estate.  In other words, you can write off the first $250,000 of assets in full if you qualify, and apply the 50% bonus write off for any other new assets not written off using the Section 179 deduction. For more information go to www.irs.govand search for “IRB 2009-6”.

Bigger Deductions for Autos and Light Trucks

Most autos (with the exception of larger SUVs and pickups) are limited with regard to depreciation deductions.  The new bonus depreciation increases the first-year depreciation deduction by $8,000 for vehicles bought and put into service by 12/31/2009.  Assuming 100% business use, the maximum deduction for 2009 is $10,960 for new cars, and $11,060 for new light trucks.

Estimated Taxes

If  50% of your total income is derived from a small business, and total income is less than $500,000, you only have to pay 90% of your estimated tax for 2009.  You can look at your 2008 return and the total tax liability, and multiply that by 90%, then divide by four to arrive at quarterly payments.  This would be the amount you should be paying in estimated taxes to avoid an underpayment penalty.  Using your prior year tax liabililty is the suggested  method.  If you expect the tax liability to be lower for 2009, I would recommend consulting with your tax professional.

Small Business Administration Loans

The stimulus bill authorizes the SBA to temporarily eliminate or reduce fees for loan-guarantee programs.  The percentage of qualifying loans that the SBA can guarantee was also increased.  If you need financing, I would encourage you to contact the SBA for further information.

Please contact your tax professional if you feel you qualify for any of these additional tax benefits.  Each circumstance is unique and this is written for general information purposes only.