Small Business Tax Benefits from the 2009 Stimulus Package

The 2009 Stimulus Package or American Recovery and Reinvestment Act (ARRA) is now law as it was passed by both houses of Congress and signed by President Obama.  How does the small business fare under this new set of incentives and tax breaks?  The package attempts to help small businesses obtain needed capital for operating and expansion while creating jobs.

The Small Business Administration is allowed to reduce or eliminate fees that are associated with the participation in the loan guarantee program.  This guarantee program insures banks against default by small business who obtain these loans.  Also, the SBA can now increase the guarantee to 90% of the qualifying loan amount.

There is also a provision in this package that offers “small business stabilizing financing” which allows a small business to pay off existing loans with up to $35,000 from the SBA.  These provisions are limited in the offering period to the SBA to administer.

Other features allow the SBA to guarantee up to $3 billion in debt which will help banks be able to buy more of these loans with lower risk.  The government wants to attract new banks to participate and those that do to increase their lending through the SBA.

Loss accounting benefits have been modified to allow companies who take losses on operating expenses to increase the time in which they can write off those losses from two years previous to five years previous.  This benefit is for companies with gross revenues of $15 million or less.

The next provision in this Stimulus bill is for new equipment purchasing.  The package allows a small business to write off up to $250,000, up from $125,000 for 2008 and 2009 in order to spark new equipment purchases.  This benefit has a cap for businesses that spend more than $800,000 per year in new equipment, which means that small businesses are clearly in the crosshairs of this option.  Vehicles, machinery and computers are all eligible items that can be used as expenses.

If you need to hire employees for your business you will find a credit of $2,400 per worker if they are an unemployed military vet or high school dropout.  Under the existing Work Opportunity Tax Credit a business can claim a tax credit for 40% of the first $6,000 in wages paid to a worker who is in a qualifying target group of disadvantaged workers.  These groups now include the veterans who left the military in the past five years and who collected unemployment four weeks before being hired.  Also disconnected youths are eligible for businesses if they are between the ages of 16 and 25 and have not attended school or were unemployed during the previous six months.

Those who invest in small businesses will realize an increase in capital gains tax breaks from 50% to 75% with restrictions.  These are that if you must buy the stock after this stimulus bill has passed into law and hold it for five years.  If so, then this tax break will benefit you.

Finally, there is a provision for SBA microloans which are made through non-profit community organizations.  These loans have a maximum of $35,000.

The debate rolls on as to whether or not these measures are enough to boost small business and ignite the economy in a meaningful way.  But the increases warrant a review in order to help make sure that your small business has a greater opportunity for financial success that it otherwise would realize without them in place.