2009 Recovery Act - Businesses

Acting quickly to jump start the economy, Congress has passed a massive economic stimulus package: the American Recovery and Reinvestment Act of 2009. As you probably have heard, the new law weighs in at nearly $800 billion. Roughly one-third is comprised of tax incentives for individuals and businesses. Congress made many of the tax incentives retroactive to January 1, 2009.

The tax incentives in the stimulus package can be broken down into two broad categories: individuals and business. Here are some of the high points for businesses.

Bonus depreciation. Bonus depreciation is one of Congress' favorite mechanisms (along with Code Sec. 179 expensing) to encourage business spending. The new law extends 50 percent bonus depreciation that expired at the end of 2008. Businesses can take advantage of bonus depreciation throughout 2009 (and longer for certain types of property). Bonus depreciation is taken on top of regular depreciation. While it can be valuable in the short term, keep in mind that a large current depreciation deduction results in smaller future deductions. Also good news in applying bonus depreciation to vehicles, the new law raises the first-year depreciation cap limits by $8,000. The new law also allows eligible businesses to monetize accumulated AMT and research tax credits in lieu of taking bonus depreciation for 2009.

Code Sec. 179 expensing. Like bonus depreciation, increased Code Sec. 179 expensing expired at the end of 2008. The new law revives it for 2009. Under the new law, Code Sec. 179 expensing for 2009 is $250,000 and the threshold for reducing the deduction is $800,000.

Net operating losses. Because of the economic downturn, many businesses are in a loss position. The Tax Code generally allows eligible taxpayers to carry back net operating losses (NOLs) two years with some exceptions. The new law increases the carryback period to five years for small businesses (which the new law defines as businesses with average gross receipts of $15 million or less). The treatment is also temporary, applying only to 2008 NOLs. Businesses that qualifying can apply for an immediate refund of taxes paid during the extended carryback period.

Work Opportunity Tax Credit. The Work Opportunity Tax Credit rewards employers that hire individuals from targeted groups, such as veterans and young people. The new law modifies the definitions of eligible veterans and disconnected youth for purposes of the credit.

Cancellation of indebtedness. Eligible businesses will be able to recognize cancellation of certain indebtedness over five years, beginning in 2014, under the new law. This treatment applies to specified types of business debt repurchased or forgiven by the business after December 31, 2008 and before January 1, 2011.

Energy incentives. The new law extends and enhances many energy tax incentives for developers and producers of alternative and renewable energy. Examples are wind, biomass and solar power. The incentives are temporary and are intended to boost production of energy from renewable sources.

More business incentives. The new law also allows qualified individuals to exclude 75 percent of the gain from the sale of certain small business stock. Additionally, Congress shortened the holding period for the S corp built-in gain period, prospectively revoked a controversial IRS notice affecting NOL limitations on banks and enhanced COBRA coverage and the health coverage tax credit. The new law also increases the New Markets Tax Credit program, decreases estimated tax payments for certain individuals whose incomes come from small businesses and delays withholding on government contractors. Congress also enhanced many tax-exempt and tax-credit bond rules to help states and local governments generate revenue.

The scope of the American Recovery and Reinvestment Act is broad. Please contact our office to discuss how the tax incentives in the new law may benefit you. If you have any questions, give our office a call today and we can discuss in detail the important tax breaks in this new law. The number is 214.827.9118.

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