New Law Contains Billions in Tax Breaks for Your Business and Workers

In February 2009, President Obama signed into law the $787 billion stimulus bill intended to jump-start the nation’s economy.  About 35 percent of the money is dedicated to tax relief for individuals and businesses.  The rest will be spent on a wide-variety of programs ranging from infrastructure construction to expanded unemployment benefits.

SEMA members and SEMA Action Network (SAN) enthusiasts contacted lawmakers to help prevent inclusion of a “cash for clunkers” program as the legislation was being drafted.  That effort was a success.  SEMA now takes this opportunity to outline several tax provisions that were included in the new law which are of direct interest to SEMA members and their workers.

Business Tax Incentives

Extension of Bonus Depreciation. Businesses are allowed to recover the cost of capital expenditures over time according to a depreciation schedule. Last year, Congress temporarily allowed businesses to recover the costs of capital expenditures made in 2008 faster than the ordinary depreciation schedule would allow by permitting these businesses to immediately write-off fifty percent of the cost of depreciable property (e.g., equipment, computers, etc.) acquired in 2008 for use in the United States.  The new law extends this temporary benefit for capital expenditures incurred in 2009.

Extension of Enhanced Small Business Expensing. In order to help small businesses quickly recover the cost of certain capital expenses, small business taxpayers may elect to write-off the cost of these expenses in the year of acquisition in lieu of recovering these costs over time through depreciation. Until the end of 2010, small businesses are allowed to write-off up to $125,000 (indexed for inflation) of capital expenditures subject to a phase-out once capital expenditures exceed $500,000 (indexed for inflation).  Last year, Congress temporarily increased the amount that small businesses could write-off for capital expenditures incurred in 2008 to $250,000 and increased the phase-out threshold for 2008 to $800,000.  The new law extends these temporary increases for capital expenditures incurred in 2009.

5-Year Carryback of Net Operating Losses for Small Businesses. Under current law, net operating losses (“NOLs”) may be carried back to the two taxable years before the year that the loss arises (the “NOL carryback period”) and carried forward to each of the succeeding twenty taxable years after the year that the loss arises. For 2008, the new law extends the maximum NOL carryback period from two years to five years for small businesses with gross receipts of $15 million or less.   Ex: a business that currently is losing money may apply these losses to a previous profitable year and then claim a refund for taxes paid that year.

Individual Tax Incentives

Payroll Tax Credit.  For 2009 and 2010, the new law provides a refundable tax credit of up to $400 for working individuals and $800 for working families.  This tax credit will be calculated at a rate of 6.2 percent of earned income, and will be phased-out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 couples).  Workers will receive this benefit through a reduction in the amount of income tax that is withheld from their paychecks, or by claiming the credit on their tax returns.  The Treasury Department will adjust the withholding tables as soon as possible to reflect the change.  For companies that use payroll software programs, the new tables should be included in software updates.  For companies that refer to published booklets, the Treasury Department will likely send out a notice that the tables have been updated.

Sales Tax Deduction for Vehicle Purchases.  The new law allows consumers to take a federal deduction for State and local sales/excise taxes paid on the purchase of a new car, light truck, recreational vehicle or motorcycle through 2009. This deduction is phased-out for taxpayers with adjusted gross income in excess of $125,000 ($250,000 for couples) and applies to car loans up to $49,500.  For a family earning $250,000, it would save about $600 on a new $35,000 car.

Home Buyer Tax Credit. First-time home buyers are eligible to receive a refundable tax credit of 10 percent of the home's purchase price up to $8,000. The home must be purchased after Jan. 1, 2009, and before Dec. 1, 2009, and the credit phases-out for taxpayers with an adjusted gross income beyond $75,000 for individuals ($150,000 for couples).

For more information, please contact Stuart Gosswein at stuartg@sema.org.


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