About a month and a half ago, immediately after President Obama signed into law the American Recovery and Reinvestment Act, I posted this blog entry, entitled “How the Stimulus Plan Benefits Small Business.”  Most of the information in that post came from a NY Times article setting forth the various benefits to small businesses.

We now have a clearer picture of how the Act benefits Oregon small businesses, thanks in part to this guide, published on Congressman Earl Blumenauer’s site.  The guide is more detailed, and written specifically for Oregonians.  Even more helpful, the guide includes a small “How to Apply” section about each tax provision.  From the guide, here are some of the benefits, as specifically applied to Oregon small businesses.  Because of the length of the guide, I won’t include everything in this post, so please refer to it for a full explanation.

• Delayed Recognition of Certain Cancellation of Debt Income

Under current law, a taxpayer generally has income where the taxpayer cancels or repurchases debt for an amount less than its adjusted issue price. The amount of cancellation of debt income (”CODI”) is the excess of the old debt’s adjusted issue price over the repurchase price. Certain businesses will be allowed to recognize CODI over 10 years (defer tax on CODI for the first four or five years and recognize this income ratably over the following five taxable years) for specified types of business debt repurchased by the business after December 31, 2008 and before January 1, 2011.

How to Apply: Business can claim this when they file for taxes. For information on qualifications, visit www.treasury.gov.

• Extension of Bonus Depreciation

Businesses are allowed to recover the cost of capital expenditures over time according to a depreciation schedule. 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 fifty percent of the cost of depreciable property (e.g., equipment, tractors, wind turbines, solar panels, and computers) acquired in 2008 for use in the United States. The bill would extend this temporary benefit for capital expenditures incurred in 2009.

How to Apply: The extension of the first-year depreciation deduction is generally effective for property placed in service after December 31, 2008. This benefit can be claimed when filing for taxes.

• Extension of Small Business Expensing

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. Until the end of 2010, small business taxpayers are allowed to write-off up to $125,000 of capital expenditures subject to a phase-out once capital expenditures exceed $500,000. 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 phaseout threshold for 2008 to $800,000. The bill would extend these temporary increases for capital expenditures incurred in 2009.

How to Apply: Small business can obtain this credit when filing for taxes.

• 5-Year Carryback of Net Operating Losses for Small Businesses

A net operating loss means the amount by which a taxpayer’s business deductions exceed the gross income. Under current law, net operating losses may be carried back to the two taxable years before the year that the loss arises and carried forward to each of the succeeding twenty taxable years after the year that the loss arises. For 2008, the bill would extend the maximum NOL carryback period from two years to five years for small businesses with gross receipts of $15 million or less.

How to Apply: This provision is effective for net operating losses arising in taxable years ending after December 31, 2007. The taxpayer can file for this benefit when filing for taxes.

• Small Business Capital Gains

This provision increases the percentage of exclusion for qualified business stock sold by an individual from 50 percent to 75 percent.

How to Apply: This provision is effective for stock issued after the date of enactment and before Jan. 1, 2011. Businesses can claim this credit when filing for taxes.

• Temporary Reduction of Small Business Corporation Built-In Gains Holding Period from 10 years to 7 years

Under current law, if a taxable corporation converts into an S corporation, the conversion is not a taxable event. An S Corporation pays no corporate level tax. Instead a loss of gain goes directly to their shareholders. When a company converts to an S corporation, they must hold its assets for ten years in order to avoid a tax on any built-in gains that existed at the time of the conversion. The bill would temporarily reduce this holding period from ten years to seven years for sales occurring in 2009 and 2010.

How to Apply: This provision will go into effect for businesses for taxable year beginning after December 31, 2008.

• SBA Extended Lending and Guarantees

This program provides $636 million for new direct lending and
guarantee authorities under the Small Business Administration’s (SBA) 504 certified development company (CDC) program, which provides growing businesses with long-term; fixed-rate financing for major fixed assets, such
as land and buildings.

How to Apply: Competitive grants can be obtained through the Small Business Administration at www.grants.gov or www.sba.gov. The SBA would be authorized to guarantee up to 90% of small business loans originating under the 504 program, and to refinance such loans.

In addition to these benefits, there are multiple incentives specifically for energy-related investments, which also may benefit local small businesses.  More information is in the guide.

Tags: Recovery and Reinvestment Act, small business, tax incentives

This entry was posted on Tuesday, March 31st, 2009 at 8:57 am and is filed under Corporate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.