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IR-2009-51, May 20, 2009
Small Business Week is May 17 to 23,, 2009, 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, 2009, created, extended or expanded a variety of 2009
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 US small businesses that invest in new property and equipment
will be able to write off most or all of these purchases on their
2009 income tax 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.
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