The American Recovery and Reinvestment Act of 2009, also known as the ARRA, was signed into law on February 17, 2009 and contains tax relief and other benefits for individuals as well as businesses.
The following provisions of the ARRA benefit businesses:
1. Depreciation – Businesses are allowed a bonus depreciation for most types of depreciable property of has been extended one year for 2009. This allows an additional deduction for qualifying purchases equal to 50% of the adjusted basis of the depreciable property.
2. Increased Section 179 Deduction – Small businesses can elect to claim a Section 179 expense deduction of up to $250,000 in 2009. The phase-out threshold begins when the amount of Section 179 property placed in service during the year exceeds $800,000.
3. Five Year NOL Carryback Period – Eligible small business calendar taxpayers can elect to have a 5 year, 4 year, or 3 year carryback period for their net operating losses arising in 2008. Eligible small businesses include partnerships, corporations, and sole proprietorships with an average annual gross receipts for the 2006-2008 timeline of less than $15 million.
However, if no election is made, the regular 2 year or 3 year carryback rules apply. Once the election is made, the election is irrevocable and must be made by the due date (including extensions) for filing the return.
4. Small Business Investment Company Stock Gains – Allows individuals a 75% exclusion of capital gain from the sale of qualified small business stock held for more tha five years. This tax benefit only applies to stock issued before January 1, 2011 and after February 17, 2009. Stock issued before February 17, 2009 receives a 50% exclusion.
5. Reduction of S Corporation Recognition for Built-in-gains Tax – For S Corporation tax years beginning in 2009 and 2010, the ten year built-in-gains recognition period is reduced to seven years. This allows taxpayers who conver from a C Corporation to an S Corporation to sell depreciable property after seven years without any negative tax consequences.