AMERICAN RECOVERY AND REINVESTMENT PLAN

President Barack Obama signed the American Recovery and Reinvestment Plan (the Bill) into law on February 17, 2009.  Some of the provisions of this bill could have a direct affect both your personal and business cash flow and your bottom line. 

Some of the key business provisions include:

• Net operating loss carry back- Net operating losses under prior law can be carried back for refunds up to two years.  The Bill extends that carryback period to five years for business with gross receipts less than $15 million.  In plain terms if your business has a net operating loss for 2008 and paid tax on net income in any of the five preceding years (2003-2007), the business can claim refunds of the taxes paid by carrying back the 2008 net operating losses to the prior years. 
• Reduction in the built-in gains holding period-Following a conversion from a “C” corporation to an “S” corporation, a corporation must hold 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 temporarily reduces this holding period from ten to seven years for conversions occurring in 2009 and 2010.
• Extension of Bonus Depreciation-Rather than requiring businesses to recover the cost of capital expenditures over time (depreciation), the bill allows a business to deduct up to 50% of the cost of depreciable property.  This bonus depreciation is for certain capital expenditures incurred in 2008 and 2009 for use in the United States.
• Section 179 Depreciation-The Bill also extends the 2008 increases in direct write-off of capital expenditures.  Under the current IRS rules small business taxpayers may elect to expense up to $125,000 of capital expenditures with a phase out threshold of $500,000.  In 2008 congress increased the election amount to $250,000 and increased the threshold to $800,000.  The Bill extends the 2008 increase through 2009.
• Work Opportunity Credits –The Bill creates two new groups of targeted employees for work opportunity credits-unemployed veterans and disconnected youth. An unemployed veteran is a veteran who was discharged or released from active duty from the Armed Forces during the past five years and received unemployment compensation for more than four weeks during the year before being hired.  Disconnected youth is defined as persons between the ages of16 and 25 who have not been regularly employed or attended school in the past 6 months.  The credit is 40% of the first $6,000 of wages.

The bill also has several provisions intended to benefit individuals. Many of these provisions are geared to unemployed and low wage earners; however there are some provisions that could benefit you and your families. 

• Extension of the AMT Relief-The Bill extends relief for nonrefundable credits and increases the AMT exemption amounts to $70,950 for joint filers and $46,700 for single filers.
• Sales tax deduction-The Bill allows the deduction of sales tax paid on the purchase of new cars, light trucks, recreational vehicles, and motorcycles through 2009.  This deduction is subject to a phase out starting at adjusted gross income of $250,000 for joint filers, $125,000 for single filers.
• Expands qualified education expenses-The Bill expands the definition of qualified education expenses for tax-advantaged savings plans.  The expanded 529 Education Plans will cover computers and computer technology in addition to tuition, room and board, mandatory fees and books.
• Refundable first time home buyer credit-First-time home buyers were entitled to a credit of up to $7,500 for homes purchased after April 8, 2008 and before July 1, 2009.  This credit was in effect an interest-free loan which was to be repaid over fifteen years. The bill revises this credit for homes purchased in 2009 by:
  • increasing the amount of the credit to $8,000***
  • extending the purchase period through November 30, 2009***
  • eliminates the repayment requirement***
• American Opportunity Education Credit-For 2009 and 2010, the bill would provide a tax credit up to $2,500 of the cost of tuition and related expenses paid during the tax year.  This credit is subject to phase-outs based on adjusted gross income($80,000 single and $160,000 for a joint return)
• Small business capital gains-Under current law, an individual can exclude 50% of the gains from the sale of certain qualified “small business” stock (subject to certain holding periods and dollar limits).  The new bill provides for an exclusion of 75% of the gain on the sale of the qualified “small business” stock (still subject to holding period and dollar limits)  This change is in affect for stock issued after the date of enactment and before January 1, 2011.

President Obama called the Bill “the most sweeping recovery package in our history” and did not want to pretend that this was the end of our economic problems but, “…The beginning of the first steps to set our economy on a firmer foundation, paving the way to long-term growth and prosperity."  This economy and the Bill provide opportunities for your business to take advantage of current climate to carefully “step” toward stability and growth.

 

 

***This credit is subject to phase-outs based on adjusted gross income ($75,000 single, and $150,000 for a joint return)

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