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IRS reminds small businesses to act now to take advantage of new law changes
IR 2009-51, Fact Sheet 2009-11
In a News Release and accompanying Fact Sheet, IRS urges small businesses to take advantage of tax-saving opportunities included in the recently enacted American Recovery and Reinvestment Act (ARRA, P.L. 111-5). Noting that “Small Business Week” is May 17 to 23, IRS has highlighted a variety of business tax deductions and credits that were created, extended or expanded in ARRA. Since some of these changes, such as bonus depreciation and the enhanced [Code Sec. 179] expensing deduction, are only available this year (unless extended by Congress), IRS advises eligible businesses that they may only have a few months left to act. Some of the key ARRA provisions are:
First-year 50% bonus depreciation. ARRA extends the 50% bonus first-year depreciation allowance that was available for 2008 acquisitions to acquisitions of qualifying property in 2009, [Code Sec. 168(k)(2)]. The extension applies to qualifying property placed in service in 2009 (2010 for longer production period property and certain transportation property). Bonus depreciation is claimed on Form 4562.
Increased Section 179 expensing. During 2009, small businesses can elect to expense up to $250,000 of the cost of qualifying property under [Code Sec. 179]. Without the extension by ARRA, the limit would have dropped to $133,000. (The existing $25,000 expensing limit still applies to sports utility vehicles.) The $250,000 maximum expensing amount is reduced if the cost of all section 179 property placed in service by the taxpayer during the tax year exceeds $800,000. The section 179 deduction is claimed on Form 4562.
Expanded net operating loss (NOL) carryback. Under a provision in ARRA, many small businesses that had expenses exceeding their income for 2008 can choose to carry the loss back for up to five years, instead of the usual two years. [Code Sec. 172(b)(1)(H)] 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 available only for a limited time. A corporation that operates on a calendar-year basis, for example, must file a claim by September 15, 2009. For eligible individuals, the deadline is October 15, 2009. Eligible individuals should file a claim using Form 1045, and corporations should use Form 1139.
Discharge of business indebtedness. Under a provision in ARRA, certain businesses that repurchase specific types of debt in 2009 and 2010 can pay taxes on cancellation of debt income over a five year period, starting with tax year 2014. [Code Sec. 108(i)]
S corporation built-in gains holding period. For tax years beginning in either 2009 or 2010, ARRA eliminates the corporate level tax on the built-in gains of an S corporation that converted from C corporation status at least seven tax years before the current tax year [Code Sec. 1374(d)(7)].
COBRA health Insurance continuation subsidy. Under a provision in ARRA, employees who were involuntarily terminated after August 31, 2008 and before January 1, 2010, and who elect COBRA health continuation coverage, are entitled to receive a 65% subsidy on their COBRA premiums. For periods of COBRA coverage beginning after February 16, 2009, the involuntarily terminated employee must be treated as having paid the required COBRA premium if the individual pays 35% of the premium amount. The employer (or, in some cases, multiemployer health plan or insurer) may recover the other 65% by taking the subsidy amount as a credit on its quarterly employment tax return [Code Sec. 4980B(f)(4)(A)], [Code Sec. 6432)].
Other provisions. IRS's Fact Sheet also highlights a number of other ARRA changes for business, including:
- an acceleration of certain business credits;
- an exclusion of gain on the sale of certain small business stock;
- a modification of the estimated tax requirements;
- an increased exclusion amount for commuter transit benefits and transit passes;
- an extension of the renewable energy production tax credit;
- an election of investment credit in lieu of the production credit;
- the repeal of certain limits on the business credits for renewable energy property; and ,
- a temporary increase in the credit for alternative fuel vehicle refueling property
The Fact Sheet can be viewed on the IRS website at http://www.irs.gov/newsroom/article/0,,id=208318,00.html.
Source: Federal Tax Updates on Checkpoint Newsstand tab 5/21/09