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Tax Incentives For Businesses

Extension of Bonus Depreciation

Last year Congress temporarily allowed businesses to accelerate the costs of capital expenditures made in 2008 by permitting them to immediately write-off 50% of the cost of depreciable property acquired for use in the U.S. This bill is expected to extend this temporary benefit for capital expenditures incurred in 2009.

2009 Bonus depreciation property would include:

• New property ("original use" must begin with the taxpayer), that are eligible for the modified accelerated cost recovery system (MACRS) with a depreciation period of 20 years or less;
• Water utility property;
• Off-the-shelf computer software that is depreciable over 3 years;
• Qualified leasehold improvement property. However, expenditures for the enlargement of a building, any elevator or escalator, any structural component that benefits a common area, or the internal structural framework of the building do not qualify for bonus depreciation;
• Passenger automobile which is used at least 50-percent for business.

Bonus depreciation could also be extended to 2010 on property with a recovery period of 10-years or longer, for certain aircraft and for transportation property, e.g. tangible personal property used to transport people or property.

Extension of Enhanced Code Sec. 179/Small Business Expensing

The final stimulus package is expected to extend the 2008 Code Sec. 179 expensing amounts to 2009. The 2008 Sec. 179 maximum expense is $250,000 and the phase-out ceiling on the cost of qualified property placed in service is $800,000. Any amount in excess of the phase-out will reduce the maximum $250,000 deduction, dollar for dollar. The deduction would be available on both the new or used property that is acquired in 2009.

Extension of Net Operating Loss (NOL) Carryback Period

The bill would extend the NOL carryback period from a two-year period to a five-year period for businesses with gross receipts of $15 million or less, for the tax year in which the loss arose. The change would apply to NOLs that are created for any tax year beginning or ending in 2008 or 2009. The extended carryback period would not be available to entities that received funding from the Troubled Asset Relief Program (TARP).

Expansion of Work Opportunity Tax Credit (WOTC)

Businesses are allowed to claim a work opportunity tax credit equal to 40 percent of the first $6,000 of wages paid to employees of one of nine targeted groups. The bill would likely be expanded to include unemployed veterans and disconnected youth. The WOTC would be combined with the Welfare-to-Work credit for qualified individuals who begin working for an employer after 12/31/06 and before 9/1/2011.

Deferral of Debt Cancellation Income

The amount of cancellation of debt income ("CODI") is the excess of the old debt's adjusted issue price over the repurchase price. The stimulus package may allow certain business to recognize CODI over 8 years for specified types of business debt repurchased by the business after 12/31/08 and before 1/1/2011.

Repeal of IRS's Built-In Loss Rules

The bill would likely repeal Notice 2008-83, which liberalized rules in the tax code that are intended to prevent taxpayers that acquire companies from claiming losses that were incurred by the acquired company prior to the taxpayer's ownership of the company

Increased Qualified Small Business Stock Capital Gain Exclusion

The bill may increase the exclusion for gain from the sale of certain small business stock held for more than 5 years from 50-percent to 75-percent for stock issued after the enactment date and before 2011.

Temporary Reduction of S Corporation Built-in Gain Holding Period from 10 Years to 7 Years

The temporary reduction on holding period would be applied to sales that occur in 2009 and 2010.

New Broadband Investment Tax Credit

The bill may provide an investment tax credit for qualified broadband expenditures in certain under-served area. The credit would likely range from 10-20 percent, depending on the type of service.

IRC 162(m)(5) Compensation Cap.

The bill may impose a $400,000 limit on the compensation of executives that are employed by any company that receives TARP funds. Additional restrictions may be placed on TARP recipients that paid bonuses of more than $100,000.

Temporarily Enhanced COBRA Benefits

Employers would be able to credit their shares of subsidy COBRA premiums paid for laid-off employees against wage withholdings and payroll taxes.

2009 American Recovery and Reinvestment Act
    Tax Incentives For Businesses
    Tax Incentives for Individuals and Families
    Tax Provisions Related to Energy
    Other Initiatives

(This information is subject to change, pending the approval of the Senate, House and President)