Stimulating tax measures for businesses
POSTED: Saturday, March 21, 2009
We all have heard about the stimulus package, but what does it mean for your Hawaii business?
Tax breaks for businesses include extended bonus depreciation, increased expensing for 2009, and longer NOL (net operating loss) carryback periods for qualified businesses.
» Bonus depreciation: Congress had temporarily allowed businesses 50 percent bonus deprecation on qualifying property acquired in 2008. The new bill extends bonus depreciation for property placed in service in 2009. Businesses are allowed to immediately write off 50 percent of the cost of property placed in service in 2009.
In general, property must be tangible personal property and the original use must begin with the business.
» Increased expensing for 2009: Many Hawaii businesses can elect to treat the cost of machinery and equipment as an expense rather than capitalizing and depreciating them. In years before 2008, the amount expensed could not exceed $125,000. The $125,000 limit was reduced by the amount by which the cost of property acquired by the business exceeded $500,000. Under current legislation, businesses can elect to deduct $250,000,and the expense is reduced when the cost of property placed in service during the year reaches $800,000. These increased limits will allow many more Hawaii businesses to qualify for the immediate expense of fixed assets.
The new law also allows businesses that are subject to alternative minimum tax (AMT) or are in a loss position to receive 20 percent of their AMT or research and development credits in lieu of the 50 percent bonus depreciation.
» Longer NOL carryback periods: Other Hawaii businesses that incur a tax loss in 2008 may be able to carry the loss back up to five years to obtain a refund of taxes paid in profitable years. To be eligible, the business must have average annual gross receipts for the three year period ending with the tax year of the loss not exceeding $15 million dollars.
» Work opportunity credit: Under the new law, 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 new law expands the work opportunity credit to include two new targeted groups. They are unemployed veterans and disconnected youth:
* Individuals qualify as unemployed veterans if they were discharged or released from active duty from the armed forces during 2008, 2009 or 2010 and received unemployment compensation for more than four weeks during the year before being hired.
* Individuals qualify as disconnected youths if they are between the ages of 16 and 25 and have not been regularly employed or attended school in the past six months.
» Cancellation of debt income: To benefit certain businesses that buy their own debt at a discount, the new law lets businesses recognize cancellation of debt income over 10 years.
The tax on cancellation of debt income is deferred for the first five years and then recognized over the following five years for specified business debt repurchased by the business in 2009 and 2010.
For tax years that begin in 2009 and 2010, S corporations' built-in gain recognition period is reduced from 10 years to seven years. Thus, the built-in gain tax will not apply to S corporations that made their S corporation election prior to 2002.
These provisions were intended to encourage businesses to continue to invest in their future by acquiring assets and hiring a productive work force, among other business transactions.