by Mielle Sullivan, Janus Networks, Inc
The stimulus bill, also known as the American Recovery and Reinvestment Tax Act of 2009, in addition to creating some jobs via public works, has some provisions to help businesses — particularly if they have seen a drop in revenue. Here is a few of the tax breaks in the bill that could help your business for tax years 2009, 2010, and maybe even farther into the future.
Reduced Estimated Tax Payments
If you file quarterly estimated tax payments, you may qualify to pay less estimated tax. To avoid fines, you would normally have to pay 100 percent of the tax you paid the previous year. Under the stimulus bill, you only have to pay 90 percent of the prior-year tax payment.
Canceled Debt Relief
If you owe a vendor or a supplier money, but negotiate a settlement or forgiveness you now don’t have to pay taxes on the amount forgiven for five years. This applies to a variety of debt-settlement plans: loan modification and absolution, cash payment resolutio, and other arrangements that occurred in tax year 2009 or later. For example, a debt you settle in 2009 will not generate a tax bill until 2014.
Because 2008 was one of the roughest years in the last 70 for small businesses, the stimulus bill has provided more flexibility to loss carrybacks to increase the chances of you getting a greater refund this year. If you lost money in 2008, normally you could only carry back that loss to the previous two years. Now you can carry it back to up to five years prior and can cherry-pick the previous year or years in which to take loss. If you had a particularly prosperous year a few years back and paid more than your normal amount of taxes, you can refile your taxes for that year, include the loss carryback, and get a refund.
S corporations are corporations that elect to pass corporate income, losses, deductions and credit through to their shareholders for federal tax purposes. The stimulus bill has decreased the number of years after formation that owners of S corporations can sell these companies without paying capital gains tax from seven years to ten years. So, if you are an owner of an S corporation established in the last 10 years, you can now transfer ownership without incurring tax
Tax-Break Extensions and Expansions
In addition to new tax laws, the stimulus bill also continues some tax provisions that were set to expire in 2008. As one example, first-year equipment purchase deduction and bonus depreciation rules were both extended in 2008 for a single year. Equipment write-offs were doubled to $250,000 and will include up to 50 percent of any purchase costs left over after the equipment deductions. The stimulus bill allows these greater limits through 2009. Depreciation on vehicle purchases is also extended to 2009; so the write-off for a new car or truck is still about $11,000.
This one new contingency may actually cost you money in the short term, if you laid off workers. The bill reduces the premiums recently laid-off workers have to pay to continue their health insurance under the federal Consolidated Omnibus Continuation of Health Coverage law. Employers now have to pay 65 percent of the premiums, with employees paying 35 percent. Previously, employees had to pay all of the premium to continue their coverage. The IRS does reimburse employers for their COBRA payments, provided they owe enough payroll tax after layoffs to cover the credit. If you laid off all or a majority of your staff, you will probably be stuck with the COBRA payments.
Businesses with qualified workers using COBRA can apply for reimbursement of their share of the COBRA payments on their quarterly employment tax return. Be sure to use the updated version of Form 941 to get your credit.
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