Tax Benefits for Business

ARRA – Summary of Major Tax Provisions

 

“Bonus Depreciation” - Special allowance for certain property acquired during 2009
Businesses are allowed to recover the cost of capital expenditures over time according to a depreciation schedule. Last year, Congress temporarily allowed businesses to recover the costs of capital expenditures made in 2008 faster than the ordinary depreciation schedule would allow by permitting these businesses to immediately write-off fifty percent of the cost of depreciable property (e.g., equipment, tractors, wind turbines, solar panels, and computers) acquired in 2008 for use in the United States. The bill would extend this temporary benefit for capital expenditures incurred in 2009.

Effect on Maryland: The provision will spur investment, by helping businesses recover more of their cost for capital investments.

Temporary increase in limitations on expensing of certain depreciable business assets
In order to help small businesses quickly recover the cost of certain capital expenses, small business taxpayers may elect to write-off the cost of these expenses in the year of acquisition in lieu of recovering these costs over time through depreciation. Until the end of 2010, small business taxpayers are allowed to write-off up to $125,000 (indexed for inflation) of capital expenditures subject to a phase-out once capital expenditures exceed $500,000 (indexed for inflation). Last year, Congress temporarily increased the amount that small businesses could write-off for capital expenditures incurred in 2008 to $250,000 and increased the phase-out threshold for 2008 to $800,000. The bill would extend these temporary increases for capital expenditures incurred in 2009.

Effect on Maryland: The provision will spur investment, by helping small businesses recover more of their cost for capital investments.

Five-year carryback of operating losses of small businesses
Under current law, net operating losses (“NOLs”) may be carried back to the two taxable years before the year that the loss arises (the “NOL carryback period”) and carried forward to each of the succeeding twenty taxable years after the year that the loss arises. For 2008, the bill would extend the maximum NOL carryback period from two years to five years for small businesses with gross receipts of $15 million or less.

Effect on Maryland: The provision will help businesses mitigate cash-flow issues due to the economic downturn.

Decreased required estimated tax payments in 2009 for certain small businesses
Reduced estimated tax payment requirements. For 2009, ARRA reduces the estimated tax payment requirements for many small business owners. Owners generally will qualify for the reduced payments if their adjusted gross income (AGI) for 2008 was less than $500,000 and if more than 50% of their 2009 gross income is generated from a "small business," which is defined as a business that, on average, had fewer than 500 employees during 2008.

Effect on Maryland: The provision will help small businesses mitigate cash-flow issues resulting from the economic downturn by lowering their payments for estimated tax expenditures.

Incentives to hire unemployed veterans and disconnected youth
Work Opportunity credit. Employers can claim a credit equal to 40% of the first $6,000 of wages paid to employees in certain target groups, such as ex-felons, food stamp recipients and disabled veterans. ARRA expands the eligible target groups to include unemployed veterans and disconnected youth. This expanded benefit applies to such workers hired in 2009 and 2010.

Energy Incentives
ARRA creates or expands several energy-related breaks for businesses, such as the Advanced energy investment credit, Renewable electricity production credit, and Alternative fuel pump tax credit.

Effect on Maryland: In general, the availability of these credits will direct investment towards “greener technologies.” These incentives will reduce the costs of businesses investing in such technologies, from what they would otherwise be.

 

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