Federal Stimulus Act -Business

We are glad to bring you an overview of the recently enacted federal stimulus plan as we understand it.  However, always check with your CPA for further details on how to apply them to your personal

business plans.

Depreciation Rules

Businesses may recover the cost of capital expenditures.  Part of the 2008 Stimulus Law, Congress temporarily allow businesses to recover the costs of capital expenditures made in 2008 faster by permitting to immediately write off 50% of the cost of depreciable property acquired for use in the USA.  This act extends through 2009.  The extended rule would allow 50% bonus depreciations for certain properties placed in service in 2009, which would be allowed against both the regular tax systems and the AMT.  This allows business to deduce from their taxes 50% of the value of that property in addition to amounts that they would otherwise claim under depreciation rules after the item's value is adjusted to account for the "bonus" depreciation.    If elected to take the bonus depreciation, then they would claim the remaining value over the normal depreciation period.

Operating Loss Carryback

This provisions permits businesses to carryback their operating losses in 2008 and 2009 for up to five (5) years, rather than the two.  Businesses choosing the longer period of time must reduce the losses by 10%.  *Companies that receive TARP funds, Fannie Mae, or Freddie Mac are not eligible.)

Small Business Capital Gains

Prior law provides a 50% exclusion from the gain from the sale of small business stock held for more than five (5) years.  The amount of gain eligible for the exclusion is limited to the greater of 10 times the taxpayer's basis in stock (or a $10M gain from stock). 

Stimulus now allows 75% exclusion for individuals on the gain from the sale of certain small business stock help more than five (5) years.  The change is for stock issued after the date of the Stimulus enactment and before 1/1/2011.  It is limited to individual investments and not the investments of the corporation.  The non-excluded portion of the gain would be taxes at the lesser of ordinary income rates or 28%, rather than the lower capital gains rates for individuals.

Extension of Increased Small Business Expensing

Congress temporarily increased the expensing limits to $250,000 and the phase-out to $800,000.  This helps businesses recover the cost of certain capital expenses who may elect to write-off the cost of these expenses in the year of acquisition in lieu of recovering the costs overtime.  The Act extends increased expensing provisions for businesses making plant and equipment expenses in 2009.

Temporary Reduction of S Corporation Built-In Gains Holding Period

The Stimulus Act temporarily reduces the holding period from ten (10) to seven (7) years for sales occurring in 2009 and 2010.    Prior, if a taxable corporation converts into an S Corporation, the conversion is not a taxable event.  Following such conversion, however, a S corporation must hold its assets for 10 years in order to avoid a tax on any built-in gains that existed at the time of conversation.