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How The Economic Stimulus Bill Impacts Your Business

By Marshall J. Varano, Tax Partner J.H. Cohn LLP

On February 17, 2009, President Obama signed into law one of the most sweeping pieces of legislation in decades.  The American Recovery and Reinstatement Act of 2009 was vehemently debated for what was to be included within its tax provisions but in reality, was much more than a tax bill.  Of the legislation's $780 billion or so price tag, about 36% relates to tax concessions.  The remaining 64% is related to infrastructure development, aid for our healthcare system, support for the jobless, and assistance to the states.  There are some significant business tax benefits designed to help your business and reward those who invest in alternative and conservative energy practices, all explained below.

Business Incentives

Bonus Depreciation and IRC Section 179 Deduction: The current ability of businesses to immediately write off 50% of the cost of new equipment purchases (Bonus Depreciation) and 100% of the cost (up to $250,000) of new or used equipment purchases, not exceeding in total $800,000 (IRC Section 179), has been extended through the end of 2009.  These depreciation provisions are allowed for AMT purposes.  Be aware that California has not conformed to the Bonus Depreciation rules or the Federal IRC section 179 limits.

Monetizing R-D and Minimum Tax Credit Carryovers: In 2008, taxpayers could elect not to take bonus depreciation in exchange for converting these credit carryovers into refundable credits.  Refundable credits are allowed whether you have a tax liability or not.  This complicated but beneficial provision has been extended for 2009.

Net Operating Loss Carrybacks:  Current law generally provides that a taxpayer can carryback a current net operating loss (NOL) two years and recover taxes paid in those years or forward 20 years.  The new law provides that a 2008 NOL may now be carried back five years (or any number of years not to exceed five).  This provision is limited to "qualified small businesses" which are defined as businesses with average gross receipts, for the previous three years, of $15 million or less. 

Discharge Debt Exclusion For Businesses: This provision allows certain businesses to defer the recognition of cancellation/modification of qualified debt income for a five-year period and then recognize such income, pro-rata, over the next five years.  This provision is effective for applicable debt instruments after December 31, 2008 and before January 1, 2011. 

Energy Incentives

One major aspect of the new law is to promote investment and development in alternative energy sources.  There are numerous extensions (too many to mention here) of existing credits for wind, bio-mass, geothermal, etc through the year 2013.  There is also an enhanced and expanded Research and Development credit of 20% of the costs of fuel cell, and renewable energy development.   Below are explanations of a few credits, which have wider applicability to most taxpayers.  The majority of these credits are again allowed against AMT.

Residential Energy Property Credit: This previous insignificant credit provided for under IRC Section 25C, for energy efficient enhancements in your home has been completely overhauled.  The new credit eliminates the previous low dollar cap item specific limitations and combines all such enhancements (insulation, windows, skylights, HVAC, water heaters, etc.) into one 30% credit for costs, up to a $1500 maximum.

Residential Energy Efficient Property Credit: This revised credit modifies the previous IRC Section 25(D) credit for solar, geothermal and wind energy property which was also limited as to amount.  The new changes provide for a credit up to 30% of the cost with no limitation.

Plug-In Electric Vehicle Credit: The current credit has been extended and expanded.

Energy Efficient Commercial Building Property Deduction: The current deduction allowed pursuant to IRC Section 179D for certain energy efferent improvements installed in depreciable property located in the US has been extended through December 31, 2013.

This is a limited discussion of the many changes brought on by the stimulus bill.  Business owners should discuss with a tax advisor how the new tax changes will impact your specific tax situation.

J.H. Cohn is one of the top 20 largest accounting and consulting firms in the U.S. Founded in 1919 and headquartered in New Jersey, the firm has nine east coast offices, as well as three offices in Southern California, providing service to the San Diego and Los Angeles areas for over 40 years.

Circular 230 disclaimer

The information included in this presentation is not intended or written to be used--and it cannot be used by anyone for the purposes of avoiding penalties that the IRS may impose.