The American Recovery and Reinvestment Act of 2009 (ARRA) was passed by both houses of Congress on Feb. 13, 2009 and signed four days later by President Obama. The proposed antidote to a financial crisis that has left the nation gasping for breath since September 2008, the law seeks to revitalize the American economy by allocating $787 billion to a variety of areas including infrastructure maintenance, aid to state and local government, welfare assistance, environmental initiatives, and energy independence programs.
Of the proposed $787 billion, approximately 36 percent ($288 billion) is dedicated to tax relief. Although the bill predominantly favors individual tax cuts, $6.15 billion of the tax relief will apply to businesses, according to the government’s Web site for tracking ARRA spending, www.recovery.gov.
The full text of the legislation is available on the White House’s Web site, but for those who don’t enjoy reading 1,071-page legal documents, here are a few of the tax incentives Relevant to small businesses:
• Bonus depreciation: The llargest portion of money, over $5 billion, can be found in this extension of the Economic Stimulus Act of 2008 (ESA). The cost of certain business expenses, such as cell phones, off-the-shelf computer software and office equipment, which are purchased and put into use during the calendar year, can be recovered over time according to a depreciation schedule. In order to allow businesses to recoup this money more quickly, these purchases are eligible for an immediate 50 percent write-off, reducing the amount of time needed to fully cover the item’s cost per the depreciation calendar. This benefit has been extended to purchases made through 2009.
• Enhanced expensing: Another carryover from the ESA, enhanced expensing is a second option for small businesses trying to recover the costs of capital expenditures, i.e., expenses made that will generate revenue or increase value over time. During the calendar year in which they were purchased, items valued up to $250,000 can be written off as expenses. This is an increase from what was formerly a $128,000 cap. Also, the investment limit for receiving the maximum write-off has been increased from $510,000 to $800,000. These temporary increases now extend to purchases made through 2009.
• Net operating loss carryback: A “net operating loss” occurs when a company’s annual deductions are greater than its taxable income. Small businesses with current losses and annual receipts under $15 million may cut their taxes by writing off these losses against profits earned in previous years. This carryback period has been increased from two to five years prior to the loss. The carryforward period remains 20 years.
• Capital gains tax break: The capital gain resulting from the sale of certain small-business stock is eligible for a tax exclusion of 75 percent, with taxes paid on the remaining 25 percent. This is an increase from the previous tax exclusion of 50 percent. This benefit is applicable only to stock held for more than five years, and only for stock issued between the date of enactment and Dec. 31, 2010.
Outside of the $6.15 billion mentioned above, the Small Business Administration has received $636 million for small-business loans. This will allow the SBA to reduce or eliminate fees for participants in its loan-guarantee program, and will also increase the number of qualifying loans that can be guaranteed to 90 percent.
Further, the SBA will be able to help businesses reduce debt by backing or issuing stabilization loans, which small businesses can use to pay off existing debts. These loans have the interest fully subsidized and require no payments for the first year, with expectations that they will be repaid within five years. Such measures will allow businesses to remain afloat during the current economic lull, which in turn, will keep Americans employed and allow business to continue as usual—the most important step in revitalizing the economy.
Information in this article is taken from the White House Web site, www.whitehouse.gov; the Recovery.gov Web site, www.recovery.gov; the Small Business Administration Web site, www.sba.gov; and the Internal Revenue Service Web site, www.irs.gov.
