Obama’s Stimulus Plan Benefits Small Business Owners

Several benefits in the Stimulus Plan benefit small business owners. However, some of the tax relief expires in 2009 or 2010 so it is important to speak to a certified public accountant to fully take full advantage of any benefits of the legislation.

IRS section 179 generally requires businesses to depreciate equipment purchases over the life of the property. In an effort to encourage small businesses to purchase equipment, the new stimulus package now generally allows a business to immediately write off the cost of equipment, up to $250,000 (an increase from $125,000) in the year of purchase. Further, the incentives (which include grants and loans to local governments and nonprofit groups) set out to expand broadband internet access to underserved areas, may allow more people to work from home.

Small businesses with gross revenue of up to $15 million will be able to carry back net operating losses (which occur when the business deductions exceed the income for the year) for up to five years. This is an increase from the previous rule of two tax years.

A business with adjusted gross income in 2008 of up to $150,000 can avoid underestimated tax penalties in 2009 by making timely estimated tax payments based on 100% of the 2008 tax liability. If the business adjusted gross income exceeds $150,000, penalties may be avoided by making estimated payments on 110% of the 2008 tax liability.

For 2009 and 2010, the new making work pay credit is 6.2 percent (which is the equivalent of the rate of social security tax) of a taxpayer’s earned income or $400 ($800 for married filing jointly), whichever is less. As a result a taxpayer receives a credit equal to Social Security withholding. There is a phase out on this credit as a person’s modified adjusted gross income increases from $150,000 to $190,000 on a joint return ($75,000 to $95,000 on an individual return). Note, the credit is unavailable if the taxpayer qualifies as someone’s dependent or is a nonresident alien. Although this credit was not previously available to small businesses, the stimulus package allows small business owners to take advantage of this credit as well.

These are merely some of the benefits available to small businesses under the new stimulus package. It is important to meet with a certified public accountant to learn all the specifics and limitation of these as well as other benefits provided in the stimulus package.

Note: The information contained in this article represents a brief summary of specific potential tax benefits and should not be relied upon without seeking the advice of an independent professional as to how any of these provisions may apply to a specific situation.

Martin S. Varon, CPA, CVA, CEBS, JD
mvaron@armvaluations.com
and
Sue K. Varon, Esq.
svaron@armvaluations.com
www.armvaluations.com