Stimulus Package Benefits Businesses and Individuals Alike

Stimulus Package Benefits Businesses and Individuals Alike

April 2009

By Joseph Popp, JD

It comprised more than 1,100 pages. It will cost more than $780 billion and makes more than 300 changes to the Internal Revenue Code. But what exactly does the American Recovery and Reinvestment Act of 2009, recently signed by President Obama, mean to you and your business? The following points can help you determine if some of the new provisions may apply to your situation.

FOR BUSINESSES

If you plan to purchase brand new property, equipment or furniture in 2009, you can recover the cost of capital expenditures made in 2009 faster than the ordinary depreciation schedule. Businesses can immediately expense 50 percent of the cost of certain new depreciable property acquired before Jan. 1, 2010. You'll be able

to use this provision even if your business has a loss in 2009.

If you purchase new or used property and your business has a profit in 2009, you can also benefit from an increased 179 deduction. The amount small businesses can write off for capital expenditures has been

increased to $250,000 for qualifying property purchased. The phase-out starts at $800,000.

If you had a loss in 2008, but had taxable income during any of the last five years, you can carry back the loss to offset previously paid income tax. Qualifying small businesses must have average annual gross receipts less than $15 million during the three tax years preceding the year of the loss.

If you hire an unemployed veteran or certain youth age 16 to 25, your business may claim a work opportunity tax credit equal to 40 percent of the first $6,000 of wages paid to unemployed veterans or disconnected youth.

Unemployed veterans discharged or released from active duty in the Armed Forces between 2008 and 2010 qualify. Veterans must have received unemployment benefits for more than four weeks during the year before they are hired.

Youth between ages 16 and 25 also qualify if they have not attended school or been regularly employed in the six months before being hired. Employees must begin working at your company between Jan. 1

and Dec. 31, 2009.

If you have an unused Research & Development Credit or Alternative Minimum Tax credit from 2005 or before, you can forego bonus and accelerated depreciation on qualified property in exchange for a current year allowance. The amount of the credit is the lesser of $3 million or 6 percent of historic AMT and R&D credits.

If you purchase equipment to produce energy using wind power in 2009 or 2010, you'll be eligible for a tax credit for 30 percent of your purchase with no limit on the amount of investment.

FOR INDIVIDUALS

If you earn less than $75,000, you'll get a credit of up to $400 both in 2009 and 2010 based on your earned income. The credit does not apply to dependents or people claimed as dependents, like college students, and phases out at adjusted gross income above $75,000 for single taxpayers or $150,000 for joint filers.

If you are retired, receive disability benefits or draw Social Security, you'll receive a onetime $250 payment, which will reduce any Making Work Pay Credit you are otherwise entitled to. The payment will likely be mailed

or direct deposited separately from tax return refunds.

If you are single and earn less than $46,700, $35,475 married filing separate or $70,950 married filing jointly, you, like 26 million other middle-income tax payers, will benefit from the increased amount in the Alternative

Minimum Tax liability exemption, thus helping you avoid this tax liability.

If you have children and earned income under $20,000, you may now be covered by the Earned Income Credit, which has been raised from 40 to 45 percent of the first $12,570 of earned income. The credit phases out for working families with gross income in excess of $16,420 ($19,540 for married couples filing jointly).

If you have children and don't owe taxes, you may receive an increased refund through the Child Tax Credit. The refundable portion of the credit is now 15 percent of earned income in excess of $3,000, as opposed to

$8,500.

If you attend college, you can get a 100 percent credit on the first $2,000 you spend on tuition and course materials and up to 25 percent credit on the next $2,000 in qualifying expenses for the first four years of postsecondary education. The credit is 40 percent refundable and phases out for adjusted gross incomes in excess of $80,000 or $160,000 for those married filing jointly.

If you buy a home between Jan. 1 and Nov. 30, 2009, you can receive a maximum tax credit of $8,000, or $4,000 for married filing separately. Unlike last year's tax credit, you don't have to pay this back. To be eligible, you must not have owned a principal residence for the three year period right before the purchase of the house. The credit phases out at adjusted gross incomes of $75,000 or $150,000 for those married filing jointly.

If you buy a new car between Feb. 17 and Dec. 31, 2009, you can deduct the state and local sales tax you paid on your 2009 tax return - whether you itemize or not. The deduction applies to purchase of new cars, light trucks, recreational vehicles and motorcycles. The deduction phases out at adjusted gross incomes of $125,000 or $250,000 for married filing jointly, and is limited to the tax on the first $49,500 of the purchase

price per vehicle. There is no limit on the number of vehicles purchased.

If your employer pays for your parking or transit pass, you can now exclude up to $230 per month of this benefit from your income. This applies to payments for March 2009 through 2010.

If you have a dependent in college, you can take money from your 529 plan to buy, tax-free, computer technology, equipment, software or Internet access while the dependent is enrolled at a qualified educational institution. The purchase must be for equipment the student will use, even if others use it, too.

If you buy equipment to generate electricity from wind or solar power or to use geothermal heat, you may be entitled to a credit of 30 percent of your expenses, with no dollar cap on the potential credit amount.

If you make energy-efficient improvements like new windows, upgraded insulation or a natural gas furnace, you can earn a credit of 30 percent of your expenses up to $1,500.

Your accountant can help guide you through these tax law changes and help you determine which items will be most beneficial to your situation.