On February 18, 2009, President Obama signed the American Recovery and Reinvestment Act, better known as the Economic Stimulus Package of 2009. This $787 billion bill is the largest single piece of legislation in U.S. history and is designed to ignite the declining American economy by stimulating individual and business spending and investment.
There are provisions in this bill that are designed to help small businesses.
Deductions for Machinery and Equipment
Small businesses can sometimes expense or write off certain qualified plant and equipment purchases during a calendar year. This is called a Section 179 deduction. Last year, that deduction was limited to $128,000 and could not be more than the income of the small business. The new economic stimulus bill increases that deduction to $250,000 tax years beginning in 2008.
It's critical to know what equipment you can take a Section 179 deduction for. It cannot be taken for land, buildings, or improvements. It can be taken for a variety of small machinery and equipment such as computer equipment and peripherals, office equipment, signs, and vehicles to name only a few. One exception is the sports utility vehicle for which you can only deduct a maximum of $25,000.
Special Depreciation Deduction
Small businesses can also take a special depreciation deduction for tax year 2008. If you buy property that you can't expense under the Section 179 deduction during 2008, you may be able to depreciate it 50% of it during the 2008 tax year. You can use the remaining 50% of the value of that property to calculate your regular depreciation tax deduction based on the appropriate depreciation table. Check the IRS website to find that depreciation information.
Another special depreciation allowance is for passenger cars, vans, and trucks for which depreciation limits are increased by $8,000.
Miscellaneous Tax Deductions
Investors in small businesses that are publicly-held who hold their stock for more than five years will enjoy a capital gains tax cut. Small businesses will also enjoy a delay in paying the 3% withholding tax on goods and services sold to governments.
Job Creation and Tax Credits
Small businesses that create jobs for unemployed veterans who have been out of work for more than six months and unemployed students who have been out of school for more than six months will get tax credits.
Small Business Administration Benefits
First, the SBA has a program called the 7(a) loan program which allows loans of $2 million dollars to small businesses backed by the federal government. The Obama administration is going to temporarily guarantee 90% of those loans, instead of the current 75%-85%, in order to encourage banks to lend.
The SBA also has a program called the 504 program which guarantees $4 million worth of economic development loans to small businesses. Beginning March 23, the fees on new 504 loan applications are temporarily eliminated for both borrowers and lenders to encourage borrowing and lending.
The Obama administration believes that these moves will stimulate lending on the part of banks because the SBA will guarantee more of the loans and fees will be lower. They further believe that this will encourage small businesses to borrow as it will be cheaper for them.
If you need a loan, check with the Small Business Administration now that the Obama administration is encouraging them to guarantee loans and making it easier for you to borrow. You might have a more positive experience with them than you have in the past!
Summary of Benefits to Small Businesses
Perhaps the biggest benefit to small businesses will be the return of customers to their businesses as job creation puts wages into the pockets of consumers and consumers are once again able to afford to buy goods and services.