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New Law Offers Special Tax Breaks for Small Business;Act Now and Save, IRS Says

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“font-size: 12pt”>Small Business Week is May 17 to 23, and the

Internal Revenue Service urges small businesses to act now and take

advantage of tax-saving opportunities included in the new recovery

law.

“font-size: 12pt”>The American Recovery and Reinvestment Act,

enacted in February, created, extended or expanded a variety of

business tax deductions and credits. Because some of these

changes—the bonus depreciation and increased section 179 deduction,

for example—are only available this year, eligible businesses only

have a few months to take action and save on their taxes. Here is a

quick rundown of some of the key provisions.

“3”>Faster

Write-Offs for Certain Capital

Expenditures

“font-size: 12pt”>Many small businesses that invest in new property

and equipment will be able to write off most or all of these

purchases on their 2009 returns. The new law extends through 2009

the special 50 percent depreciation allowance, also known as bonus

depreciation, and increased limits on the section 179 deduction,

named for the relevant section of the Internal Revenue Code.

Normally, businesses recover these capital investments through

annual depreciation deductions spread over several years. Both of

these provisions encourage these investments by enabling businesses

to write them off more quickly.

“font-size: 12pt”>The bonus depreciation provision generally

enables businesses to deduct half the cost of qualifying property

in the year it is placed in service.

“font-size: 12pt”>The section 179 deduction enables small

businesses to deduct up to $250,000 of the cost of machinery,

equipment, vehicles, furniture and other qualifying property placed

in service during 2009. Without the new law, the limit would have

dropped to $133,000. The existing $25,000 limit still applies to

sport utility vehicles. A special phase-out provision effectively

targets the section 179 deduction to small businesses and generally

eliminates it for most larger businesses.

“font-size: 12pt”>Bonus depreciation and the section 179 deduction

are claimed on Form 4562. Further details are in the instructions

for this form.

“3”>Expanded Net

Operating Loss Carryback

“font-size: 12pt”>Many small businesses that had expenses exceeding

their incomes for 2008 can choose to carry those losses back for up

to five years, instead of the usual two. For small businesses that

were profitable in the past but lost money in 2008, this could mean

a special tax refund. The option is available for a small business

that has no more than an average of $15 million in gross receipts

over a three-year period.

“font-size: 12pt”>This option is still available for most eligible

taxpayers, but only for a limited time. A corporation that operates

on a calendar-year basis, for example, must file a claim by Sept.

15, 2009. For eligible individuals, the deadline is Oct. 15,

2009.

“font-size: 12pt”>Eligible individuals should file a claim using

Form 1045, and corporations should use Form 1139. Details can be

found in the instructions for each of these forms, and answers to

frequently-asked questions are posted on

“http://IRS.gov”>IRS.gov.

“3”>Exclusion of

Gain on the Sale of Certain Small Business

Stock

“font-size: 12pt”>The new law provides an extra incentive for

individuals who invest in small businesses. Investors in qualified

small business stock can exclude 75 percent of the gain upon sale

of the stock. This increased exclusion applies only if the

qualified small business stock is acquired after Feb. 17, 2009 and

before Jan. 1, 2011, and held for more than five years. For

previously-acquired stock, the exclusion rate remains at 50 percent

in most cases.

“3”>Estimated Tax

Requirement Modified

“font-size: 12pt”>Many individual small business taxpayers may be

able to defer, until the end of the year, paying a larger part of

their 2009 tax obligations. For 2009, eligible individuals can make

quarterly estimated tax payments equal to 90 percent of their 2009

tax or 90 percent of their 2008 tax, whichever is less. Individuals

qualify if they received more than half of their gross income from

their small businesses in 2008 and meet other requirements. For

details, see Publication 505.

“3”>COBRA

Credit

“font-size: 12pt”>Employers that provide the 65 percent COBRA

premium subsidy under ARRA to eligible former employees claim

credit for this subsidy on their quarterly or annual employment tax

returns. To help avoid imposing an unnecessary cash-flow burden,

affected employers can reduce their employment tax deposits by the

amount of the credit. For details, see Form 941. Answers to

frequently-asked questions are posted on

“http://IRS.gov”>IRS.gov.

“font-size: 12pt”>Other ARRA business provisions relate to

discharges of certain business indebtedness, the holding period for

S corporation built-in gains and acceleration of certain business

credits for corporations. Details are in Fact Sheet FS-2009-11

included with this release.

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