Tax Relief for Small Business
It’s that time of year again; small business owners are thinking about taxes, and this year they’ll be looking to the government for relief. Already there have been extensions of measures set to expire in 2007, and small businesses have been offered additional tax relief as part of the Economic Stimulus Act of 2008; more relief could be on the way, according to a New York Times article by Conrad De Aenlle last week.
Tax relief extensions include a 20 percent tax credit on research expenses and a provision that allows businesses to recover improvement costs on leased space over 15 years instead of 39 years; the new break is a doubling, to $250,000, of the amount of expenses on new equipment and other purchases that a business can write off immediately, rather than over time through depreciation formulas. According to the New York Times article, this last figure could go even higher, and small businesses could see even more relief from Congress or the IRS.
It seems there is agreement in Congress that there is an inequity in business taxation whereby income is taxed immediately, and many costs can only be deducted over long periods of time. So more deductions could be offered, but will small business be able to take advantage of them? What if they don’t have the income to use against these deductions? According to the Times article, there is another provision in the new stimulus package that could help small businesses more during these challenging times.
Currently if a business suffers a net operating loss it can only offset losses against profits from two years back, but a change in the law could change that to 5 years. This would allow businesses to get a refund on taxes paid as far back as 5 years ago to offset any 2008 losses. The amount that a business could carry back would be 90% of the loss.
Even with this provision there will likely be many businesses that can’t pay their whole tax bill this year. In these cases it will be up to the IRS to handle each business individually, and, according to the New York Times article, a spokeswoman from the Internal Revenue Service says some leeway will be given, debt collections possibly postponed, and leniency granted in the case of missed payments under installment agreements.
