Tax breaks for businesses

On Feb. 17, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (ARRA). While approximately two-thirds of the nearly $800 billion stimulus act is focused on government spending initiatives intended to create jobs and jumpstart the economy, about one-third provides tax breaks for businesses and individuals.

Here are a few of the substantial tax breaks for businesses.

S corporation built-in gains tax relief – Although a C corporation conversion to an S corporation isn’t a taxable event, the S corporation normally must hold on to its assets for 10 years to avoid tax on any built-in gains that existed at the time of the conversion. Under ARRA, for tax years beginning in 2009 and 2010, there generally will be no tax on an S corporation’s net unrecognized built-in gain if the seventh tax year in the recognition period occurred before the 2009 and 2010 tax years.

Net operating loss carryback – Generally, a net operating loss (NOL) may be carried back two years to generate a current tax refund, providing a cash infusion in times of loss. Qualified small businesses with gross receipts of $15 million or less may elect to carry back 2008 (not 2009) losses two, three, four or five years.

Depreciation breaks extended –   This act extendes the increase in the Section 179 limit for initial year expensing to $250,000 (from $125,000 indexed for inflation).     Another depreciation-related provision extends the special allowance for certain property, generally if acquired in 2009.  For eligible property, the special depreciation amount is equal to 50% of its adjusted basis.  For passenger automobiles that are eligible property under the 50% bonus depreciation rules, the $8,000 increase for the first-year limit on depreciation also is extended to new vehicles placed in service in 2009.    Last year, corporate taxpayers were also allowed to accelerate their alternative minimum tax (AMT) and research and development (R&D) credits in lieu of taking the 50% bonus depreciation. That break has now been extended through 2009.