Tax Edge

By Robert Steere, Toolkit Staff Writer

In recognition of Small Business Week 2009 (May 17 to 23), the IRS issued a reminder to small businesses to take advantage of tax-saving opportunities offered through the American Recovery and Reinvestment Act (the 2009 Recovery Act). The IRS published a related fact sheet, which is available on the IRS website, to provide basic information on these opportunities.

The 2009 Recovery Act established, extended or expanded a number of tax deductions and credits for small businesses. Some of these tax breaks apply only for 2009, so eligible businesses must plan their tax-saving actions without delay. Let's review some of the key items identified by the IRS in its announcement.

Accelerated Write-Offs for Capital Expenditures

Special Expensing. The Section 179 deduction allows for special first-year expensing of up to $250,000 of the cost of machinery, equipment, vehicles, furniture and other qualifying depreciable property placed in service in 2009. Instead of writing-off the cost of assets through depreciation deductions over several years, this provision allows the immediate write-off of qualifying assets. After 2009, the deduction will again be limited to $133,000. Because the allowable deduction is phased out when purchases of qualifying property exceed $800,000, this tax break is targeted toward smaller businesses.

Bonus Depreciation. The 2009 Recovery Act extended the special first-year 50 percent depreciation allowance, known as bonus depreciation, through 2009. This provision allows businesses the option to deduct one-half the cost of qualifying property in the year it is placed into service. After 2009, this option will be repealed. You can claim both bonus depreciation and Section 179 special expensing on IRS Form 4562, filed with your federal income tax return.

Longer Net Operating Loss Carryback Period

Small businesses that were profitable in earlier years, but had a net operating loss (NOL) for 2008 (or expect to have an NOL in a fiscal year that began in 2008), can choose to carry the loss back as many as five years, instead of the normal two, thanks to the 2009 Recovery Act. This could mean a tax refund for your business at a time when it could be very important to your cash flow. The five year carryback option is available only for small businesses averaging no more than $15 million in annual gross receipts during the last three years. An eligible corporation that operates on a calendar-year basis must file its claim on IRS Form 1139 by September 15, 2009. An eligible individual must file using IRS Form 1045 by October 15, 2009.

Exclusion of Gain on the Sale of Certain Small Business Stock

The 2009 Recovery Act provides an added 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. Otherwise, the lower exclusion rate of 50 percent will apply in accordance with the standard provision in the law. In either event, the stock must be held for more than five years for the gain on sale to qualify for the exclusion.

Estimated Tax Payment Obligations Eased

Many individual small business taxpayers may be able to defer payment, until the end of the year, of a larger part of their 2009 tax obligations. For 2009, eligible individuals can meet their quarterly estimated tax payment obligations by paying the lesser of 90 percent of their 2009 tax or 90 percent of their 2008 tax. Individuals qualify if they received more than half of their gross income from their small businesses in 2008 and meet other requirements. This can help ease cash flow to a limited extent during the year.

For more information, you can review the full text of the news release and fact sheet.

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Posted June 8, 2009.