NASE News

Main Street Businesses Receive Nod In Stimulus Bill

Working Individuals Receive $400 Per Person Tax Credit; Small Business Expensing Limits Expanded

Washington, D.C., February 20, 2009 – President Barack Obama recently signed his first major piece of legislation since taking office – a $787 billion economic recovery package that morphed from an idea to a bill on the president’s desk in about a month and a half. According to the Joint Committee on Taxation, it contains over $290 billion in aid for states, provisions for energy efficient technology, increased benefits for the unemployed, spending on infrastructure and more.

The National Association for the Self-Employed (NASE) is a nonpartisan organization that occasionally offers policy recommendations to encourage the ability of start up businesses and current entrepreneurs to succeed in today’s economy. For the past several years, the NASE has advocated for tax offsets that would allow greater equipment expensing for micro-business owners. The Senate Finance and House Ways and Means Committees, two Congressional bodies in charge of taxation and revenue, released the following details on tax incentives for families and small businesses:

• Making Work Pay Credit: The bill provides a $400 credit per worker and an $800 credit per double-earner couple. Those making $75,000 or less for individuals or $150,000 or less per couple would be eligible for the credit. Individuals earning above the requirement but no more than $100,000 ($200,000 for couples) would be eligible for a partial credit.
• Depreciation costs: Allows a business to write off expenses for new capital equipment. Half the cost of these purchases made in 2009 is permitted if the equipment is used this year. A fixed depreciation schedule would apply to the rest of the cost of the purchase. 
• Temporary deduction for new automobiles: Eligible taxpayers who purchase a new car, light vehicle, recreational vehicle or motorcycle in 2009 will be permitted to deduct state and local sales taxes and applicable excise tax. This deduction applies to those earning less than $125,000 or less than $250,000 for joint filers. 
• Loss write-offs: Small-business owners will be permitted to expand the "net-operating loss carryback" to five years for businesses with gross revenue of $15 million or less. The current allowance is two years. Eligible businesses would also be permitted to apply 2008 losses to past and future tax bills. 
• Temporary Reduction of S Corporation Built-In Gains Holding Period from 10 Years to 7 Years. Under current law, if a taxable corporation converts into an S corporation, the conversion is not a taxable event. The bill adds a provision that, in the event that such a conversion occurs in 2009 or 2010, an S corporation must hold its assets for seven years – down from 10 – in order to avoid a tax on any built-in gains that existed at the time of the conversion. 
• Delayed Recognition of Certain Cancellation of Debt Income. Under current law, a taxpayer generally has income where the taxpayer cancels or repurchases its debt for an amount less than its adjusted issue price. The amount of cancellation of debt income (“CODI”) is the excess of the old debt’s adjusted issue price over the repurchase price. Certain businesses will be allowed to recognize CODI over 10 years (defer tax on CODI for the first four or five years and recognize this income ratably over the following five taxable years) for specified types of business debt repurchased by the business after December 31, 2008, and before January 1, 2011.

“It is unfortunate that Congress was unable to add a provision that would give micro-businesses the option of a standard home office deduction – a small change that would have helped these firms save thousand of dollars each,” said Keith Hall, NASE National Tax Advisor. “However, we are encouraged by the number of tax incentives that will directly affect business owners by putting more money in their pockets.”

Visit the NASE Advocacy Web page to keep up-to-date on this and other micro-business legislation.