February 24, 2009

Home Based Business and Tax Stimulus

Home Businesses Share of the $288 Billion Tax Stimulus Package

If you’re a home based business owner, you’re probably been wondering what the $288 billion tax stimulus bill means to you. Here’s a rundown on your slice of the pie:

Home Business Slice of Tax Stimulus

Net Operating Loss Carryback

If you’ve paid taxes on income sometime in the last five years and you lost money in 2008, you can apply the 2008’s loss to the taxes you paid in prior years and maybe even get a tax refund. If you’ve already filed your taxes for 2008, talk to your accountant about whether it makes sense to amend your returns.

50% Special Depreciation Allowance

Bonus depreciation allows businesses to immediately deduct half the cost of equipment rather then depreciating it over time. If you purchase and utilize new equipment in 2009, this may offer a larger deduction than you’d otherwise have received.

New Depreciation Limits on Business Vehicles

The total depreciation deduction, including the section 179 deduction, a business can take for a passenger automobile (not a truck or van), used in the business and first placed in service in 2008 is $2,960 or $10,960 for automobiles for which the special depreciation allowance applies. The maximum deduction that can be taken for a truck or van used in a business and first placed in service 2008 is $3,160 or $11,160 for trucks or vans for which the special depreciation allowance applies.

Section 179 Depreciation

A qualifying taxpayer can elect to treat the cost of certain property as an expense and deduct it in the year the property is placed in service instead of depreciating it over several years. This property is frequently referred to as section 179 property.

Not that most home-based businesses are going to bump up against the limit, under the new law, a qualifying business can expense up to $250,000 of section 179 property purchased by the taxpayer in a tax year beginning in 2008 (up from the prior limit of $128,000). Sport utility vehicle purchases will still be subject to an expense limit of $25,000.

Making Work Pay Tax Credit

Single filers earning less than $75,000 per year qualify of a tax refund of $400. Joint filers with earnings of less than $150,000 qualify for an $800 tax refund. The actual credit is equal to 6.2% of your earned income. In the case of some sole proprietors, this may allow you to lower your quarterly estimated tax payments.

Holding Period for S Corporations

Taxes are a huge issue when selling a business. If you were thinking about selling sometime in the next several years, you may want to talk to your accountant about the tax advantage of accelerating your plans. The stimulus package reduced the holding period from 10 to 7 years for assets to be sold without built in gains (the difference between what your assets are worth now and what you originally paid for them). The provision will only apply to S Corporations that sell their businesses in 2009 or 2010.

If you have trouble sleeping, the 400+ page bill is available in its entirety on the Whitehouse press site.

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