Here's What Businesses Need to Know about the New Tax Law

The recently enacted "American Recovery and Reinvestment Act of 2009" (2009 Economic Stimulus Act) includes a wide-range of tax incentives.

Extension of Bonus Depreciation

Last year, Congress temporarily allowed businesses to recover the costs of capital expenditures made in 2008 faster than the ordinary depreciation schedule would allow by permitting these businesses to immediately write off 50% of the cost of depreciable property acquired in 2008 for use in the United States.

The new law extends this temporary benefit for qualifying property purchased and placed into service in 2009.

Extension of Section 179

In order to help small businesses quickly recover the cost of certain capital expenses, small business taxpayers may elect to write off the cost of these expenses in the year of acquisition in lieu of recovering these costs over time through depreciation.

Last year, Congress temporarily increased the amount that small businesses could write off for capital expenditures incurred in 2008 to $250,000 and increased the phase-out threshold for 2008 to $800,000. The new law extends these temporary increases for capital expenditures incurred in 2009.

Expanded Carryback of Net Operating Losses

Prior to the new law, net operating losses (NOLs) could be carried back to the two years before the year of the loss and carried forward for the succeeding twenty years.

For 2008, the new law extends the maximum NOL carryback period from two years to five years for small businesses with gross receipts of $15 million or less.

Incentives to Hire Unemployed Veterans and Disconnected Youth

Businesses are allowed to claim a work opportunity tax credit equal to 40% of the first $6,000 of wages paid to employees of one of nine targeted groups. The new law expands the work opportunity tax credit to include two new targeted groups: (1) unemployed veterans; and (2) disconnected youth.

Individuals qualify as unemployed veterans if they were discharged or released from active duty from the Armed Forces during 2008, 2009 or 2010 and received unemployment compensation for more than four weeks during the year before being hired. Individuals qualify as disconnected youths if they are between the ages of 16 and 25 and have not been regularly employed or attended school in the past 6 months.

Accumulated AMT and R&D Credits

The new law extends the provision contained in the Foreclosure Prevention Act of 2008 and allows AMT and loss taxpayers in 2009 to receive 20% of the value of their old AMT or research and development (R&D) credits to the extent such taxpayers invest in assets that qualify for bonus depreciation.

Delayed Recognition of Cancellation of Debt Income

To benefit certain businesses that buy their own debt at a discount, the new law lets the businesses recognize cancellation of debt income over 10 years for specified types of business debt repurchased by the business in 2009 or 2010.

Qualified Small Business Stock

The new law increases the exclusion for gain from the sale of certain small business stock held for more than five years from 50% to 75% for stock issued after the enactment date and before 2011.

S Corporation Holding Period

The new law temporarily shortens the holding period of assets subject to the built-in gains tax from 10 years to 7 years.

Estimated Taxes

The new law decreases required estimated tax payments for individuals whose incomes primarily come from a small business in 2009. Rather than being required to make quarterly estimated tax payments based on 100% of their 2008 returns, the new law allows computation based on 90%.

To qualify, the individual's adjusted gross income must be less than $500,000 and he or she must certify that more than 50% of the gross income shown on his or her return for the prior tax year was income from a small business. Income from a small business generally means income from a trade or business with an average number of employees of 500 or fewer.