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Washington Watch - February 19, 2009

Stimulus Bill Signed Into Law
President Obama has signed the 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 bill contains tax incentives for individuals and small businesses, including the following as released by the Senate Finance and House Ways and Means Committees:

Individuals and Families
  • 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.
  • 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.
  • Temporary credit for homebuyers: The bill increases the first-time homebuyer credit to $8,000. In order to receive the credit, a home must be purchased after Jan. 1, 2009, and before Dec. 1, 2009. It removes a provision requiring the buyer to pay back the credit if he or she does not remain in the home for a minimum of three years.
  • Increase in Earned Income Tax Credit. A temporary increase in the earned income tax credit will apply to families with three or more children. Working families would be eligible for an earned income tax credit equal to forty-five percent (45%) of the family’s first $12,570 of earned income. The bill would also increase by $1,880 the beginning point of the phase-out range for all married couples filing a joint return (number of children notwithstanding).
  • Increase Eligibility for the Refundable Portion of Child Credit. For 2009 and 2010, the child tax credit is refundable to the extent of 15 percent of the taxpayer’s earned income in excess of $3,000.
  • “American Opportunity” Education Tax Credit. For 2009 and 2010, individuals seeking a degree in higher education are eligible for an “American Opportunity” tax credit of up to $2,500 of the cost of tuition and related expenses paid during the taxable year. Forty percent (40%) of the credit would be refundable. This tax credit will be subject to a phase-out for taxpayers with an adjusted gross income exceeding $80,000 ($160,000 for married couples filing jointly).


Small Business

  • 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.
  • Loss write-offs: Small business owners will be permitted to expand the "net-operating loss carryback" to five years 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 ten – 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.

Visit the Senate Finance or House Ways and Means Committees online for complete details. Point your browser to for up-to-date information on how the stimulus initiative affects micro-businesses and the self-employed.


Suggestions for Streamlined Program Delivery, E-Learning from SBA
The House Committee on Small Business recently held a hearing on “The State of SBA’s Entrepreneurial Development Programs and Their Role in Promoting an Economic Recovery.” In her opening statement, Chairwoman Nydia Velazquez (D-N.Y.) lauded the Entrepreneurial Development programs of the Small Business Administration (SBA) for helping create 73,000 new jobs and driving $7.2 billion in to the economy in 2008.

“Entrepreneurial development is critical to small business success. In fact, firms that receive this kind of assistance are twice as likely to succeed as those that don’t,” said Rep. Velazquez. “From executive mentoring to veterans business initiatives, they help new and experienced entrepreneurs gain access to the tools they need to flourish. But perhaps most importantly, these programs foster job creation and economic growth.”

Margot Dorfman, CEO of the U.S. Women’s Chamber of Commerce, recommended that the greatest number of small businesses could be helped by streamlining SBA services. Dorfman suggested using the existing Small Business Development Center (SBDC) network as a foundation for a new service delivery platform.

Barbara Wrigley, Executive Director of the Association of Women’s Business Centers, asked Congress to, “ensure that SBA lending and loan guarantee programs do what they are intended to do: to step in and step up when the hesitancy of banks increase.”

In addition to recommending increased access to capital for small firms, numerous witnesses called for more assistance to under-served and minority- and women-owned small businesses, as well as the creation of comprehensive e-learning and distance learning programs by the SBA.

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