With many tax opportunities available this year, being aware of your options can save you quite a bit of money as you do your year-end tax planning, says David McClain, CPA, MBA, manager in the tax department at SS&G Financial Services, Inc.
“With these new tax rules, the government is trying to stimulate businesses to spend more money, encourage growth in businesses, encourage businesses to buy new equipment and get money back in the economy,” McClain says.
Smart Business spoke with McClain about how to take advantage of changes in the tax code as you begin to prepare your 2009 tax returns.
What are the biggest tax changes that business owners need to be aware of?
One of the biggest updates is an extension of the increase in Section 179 expensing limitations. For 2009, a business can expense up to $250,000 of property that would normally have to be capitalized and depreciated, as long as it does not purchase more than $800,000 worth of property. For example, if a business bought $500,000 in equipment and this provision was not in place, it would have to capitalize the $500,000 and depreciate it over seven years. Under the increased expensing limitations, the first $250,000 can be taken upfront as an expense and only the second $250,000 would be depreciated.
Also, a new economic stimulus bill gives all businesses the ability to elect an up to five-year carryback for net operating losses (NOLs) incurred either in 2008 or 2009, but not both (at the election of the taxpayer). Businesses are able to offset 50 percent of the available income from the fifth year and 100 percent of all income in the remaining four carryback years. Small businesses that already elected to carry 2008 NOLs back three, four, or five years under the American Recovery and Reinvestment Act (ARRA) can elect to carry back losses from 2009.
How do new rules allow business owners to reduce the amount of estimated taxes they’ll pay in 2009?
With the ARRA, if individuals have an adjusted gross income (AGI) of less than $500,000, and more than half of their income came from a business they own with fewer than 500 workers, their estimated tax liability for 2009 can be 90 percent of their liability from 2008, instead of the typical 100 to 110 percent, depending on AGI. Even if they have not taken advantage of the reduced estimated tax liability, they can still reduce the fourth quarter estimate to reflect the lesser amount, helping increase cash flow at year-end.
