SMALL-BUSINESS OWNERS may finally have something to celebrate. Between tax perks and billions in boosted spending, the government’s $789.5 billion economic stimulus package may end up benefitting them the most.
The stimulus bill contains a number of inducements for small businesses. Not only is there $500 billion in spending projects that small businesses could bid on, but there are also a series of tax incentives designed to spur small business investments and ease this year’s losses.
Here are some of the highlights:
Small businesses with annual revenue of less than $5 million can carry any losses they incurred this year back five years rather than the regular two (under the old scenario, any excess losses had to be carried forward for future years, offering no tax savings until future profits were earned). Under the new changes, taxes paid on profits that were wiped out by recent losses can be reclaimed immediately as tax refunds.
The plan also extends the first year 50% bonus depreciation, which allows small companies to depreciate most or all of the cost of capital investments – such as new cars or light trucks – in the first year they are put to use. Businesses will also be allowed to write off up to $250,000 of qualified purchases made in 2009. (For 2009-2010, the maximum Section 179 deduction was supposed to drop to $133,000.)
“Being able to depreciate expenses quicker could make a big difference to a lot of businesses,” says Dean Baker, a co-director at the Center for Economic and Policy Research in Washington, D.C. However, the potency of the measure may be lost on businesses that can’t afford to buy new equipment.
Small-business owners should also be thanking Congress for extending the patch that shields more than 20 million taxpayers from getting hit with the Alternative Minimum Tax, says Ross DeVol, director of regional economics at the Milken Institute. Many business owners file as individuals, and often fall prey to the dreaded AMT.
Within the $500 billion the government plans to spend on new projects, it plans to put $29 billion into infrastructure work, such as modernizing roads and bridges and $19 billion toward increasing the adoption of health information technology. And that’s just the beginning. (To find out which businesses are poised to benefit the most, read our story .)
It may take some time for that money to trickle down to small businesses, however. The Congressional Budget Office doesn’t expect most of the spending to begin until 2010. (For tips on landing a contract with the government, read our story .)
President Obama originally proposed eliminating capital gains taxes on all investments made in small and start-up businesses. However, that initiative never even made it to the House’s bill.
Instead, investors who hold stock in a small company are privy to a special reduced capital gains tax rate of 7% from the current 14% when they sell their shares after more than five years.