TIP: Don’t Overlook Stimulus Act’s Tax Breaks FOR BUSINESSES & Taxpayers

Tip of the Month

March 2009

TIP: Don’t Overlook Stimulus Act’s Tax Breaks FOR BUSINESSES & Taxpayers

Taxpayers and small business owners got some good news with the passage of the economic stimulus bill, which Congress passed in mid-February. Now is a good time to consult your tax professional to hear about the details and to get expert advice regarding your personal situation. Here’s an overview of some of the tax breaks:

First-Time Home Buyer Credit Extended
The Stimulus Act gives first-time home buyers a break, extending the credit for first-time buyers for an additional five months and including purchases made through November 2009. The maximum credit under the new rules is a little more generous—equaling either 10 percent of the purchase price or $8,000 ($4,000 for married taxpayers who file separately) whichever is the smaller sum. Additionally, for purchases made in 2009, eligible home buyers are no longer required to pay the credit back over a 15-year timetable.

To be eligible for the new tax break, home buyers must not have owned a principal residence in the U.S. during a three-year period that concluded on the purchase date of the new home. This provision must be met by married couples regardless of whether they file jointly or separately.

There are other requirements and qualifying criteria that apply, including a provision requiring repayment of the credit if you sell the home for a profit within three years. Your professional tax advisor can discuss the finer details with you.
“Making Work Pay” Credits
A credit equal to 6.2 percent of annual earned income –with a cap of $400 for an individual and $800 for married joint filers—is available for eligible taxpayers for 2009 and 2010. The credit is calculated on a sliding scale and applies to single filers with an adjusted gross income (AGI) of $75,000 to $95,000, or for married couples filing jointly with an AGI of $150,000 to $190,000. Employees will receive their credits in advance through reductions made to the amounts withheld by their employers for payroll taxes for the rest of this year. The Internal Revenue Service (IRS) will provide employers with revised tables showing the rate of employment withholding taxes to help compliance. Eligible self-employed taxpayers may collect their credits in advance by appropriately reducing their estimated tax payments.
Easing The Tax Burden on Small Businesses
Owners of small businesses may reclaim tax refunds in their filings for 2009 for taxes paid previously on profits that have been negated by recent losses. The Stimulus Act has given eligible small businesses (with revenue of less than $5 million) that incurred losses this year the green light to carry the losses back five years (an improvement over the previous provision that required a business to carry losses forward to offset future profits). This may not make up for a tough year, but does help to ease the pain of this year’s downturn.
Allowing Businesses to Depreciate Expenses Faster
The Act puts the 50 percent bonus depreciation back into play by extending the provision that allows small businesses to depreciate most, or sometimes all—see the information in the paragraph below to determine how much is covered by the tax break— of the cost of capital investments in the first year that they are used.

The changes also boost Section 179 deductions, which originally were to be reduced to $133,000 for 2009 to 2010, to allow eligible business to write-off up to $250,000 in qualified purchases this year.

No one wants to leave money on the table for Uncle Sam, and this year perhaps even more so. Make sure you take advantage of every tax break available to you as both a taxpayer and as a business owner. Don’t wait until the eleventh hour to determine your eligibility for the new provisions. Schedule sufficient time to meet with your tax advisor this month.

These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.