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Tax Breaks Could Spur Business Investment

From The Washington Bureau:

The American Recovery and Reinvestment Act gives companies two reasons to invest in new equipment this year, and it provides many small businesses a way to find the money to make these purchases.

The economic stimulus package extended two tax incentives for business investment through the end of this year. Companies can write off 50 percent of the cost of new equipment immediately instead of following the usual depreciation schedules. Small businesses can expense up to $250,000 of new equipment purchases this year.

These breaks can be a powerful incentive for business investment, especially when combined, said Bill Smith, director of the national tax office for CBIZ MHM.

Smith cites an example of a small business investing $500,000 in equipment that normally is depreciated over five years. The business could take the $250,000 Section 179 expensing limit and then apply 50 percent bonus depreciation. The business could then depreciate $25,000 of the remaining $125,000 of the investment this year. The end result: The business could write off $400,000 of the $500,000 investment this year, instead of having to wait to recover this money.

That's good for cash flow, but many companies may not have the cash or credit to make this kind of investment, especially in such a weak economy.

Business tax breaks

Under the economic stimulus package:

Businesses can immediately write off 50 percent of the cost of new equipment purchased in 2009

Small businesses can immediately write off $250,000 for capital expenditures made this year

Small businesses with gross receipts of $15 million or less can carry back net operating losses for five years instead of two years

Some companies can defer taxes on certain types of business debt repurchased before 2011

Source: Senate Finance Committee

"A lot of small businesses aren't going to have the capacity to do it right now," said Clint Stretch, managing principal for tax policy at Deloitte Tax.

The economic stimulus package provides a solution, however, to businesses with less than $15 million in annual revenue. The new law allows these businesses to carry back net operating losses for five years, instead of the previous two-year limit. A business that currently is losing money could apply these losses to a previous profitable year and then claim a refund for taxes paid that year.

Survey: Many Small Business Owners Favor Tax Cuts Over Asset Plan

The Dallas News posted an article earlier today discussing a poll of small business owner’s opinions on tax cuts to stimulate the economy. Check out a portion of the study’s findings below, or check out the full text here.

Many small business owners disagree with the U.S. government’s allocation of funds from its Troubled Assets Relief Program (TARP) and think tax cuts are a better way to stimulate the stalled economy, according to a survey released on Monday by online payroll service SurePayroll.

“Small business owners are screaming for a different solution," Michael Alter, president of Glenview, Ill.-based SurePayroll, which conducted the survey this month. "They know firsthand the challenges their businesses are facing, and have seen no relief from Washington."

Nearly three-quarters of the survey respondents disapproved of TARP, which was set up last year to funnel $700 billion to financial institutions hurt in the subprime mortgage crisis. Survey respondents blamed Congress, U.S. Treasury Secretary Henry Paulson and lobbyists for the mishandling of TARP disbursements. Only 3 percent deemed TARP effective.

Nearly three out of four small business owners think the government should take a different approach to boost the economy, with about half saying the answer is to cut taxes. Other suggestions included:

• A massive stimulus program (11 percent).

• Easing the small business health care burden (10 percent).

• Forcing banks to lend money (9 percent).

Senate Panel May Add $69 Billion AMT Plan to Stimulus

From Bloomberg News:

The U.S. Senate’s tax-writing committee might add $69 billion in relief from the alternative- minimum tax to the $825 billion economic stimulus proposal.

The provision benefiting more than 30 million households, primarily with incomes between $100,000 and $500,000, will be considered as an amendment to $272 billion in tax cuts being drafted today by the Senate Finance Committee as part of the broader stimulus plan.

Inclusion of alternative-minimum tax relief would swell the stimulus plan’s tax cuts, which so far are anchored to President Barack Obama’s campaign promise to give workers a tax cut of up to $1,000 by reducing Social Security payroll taxes. The Obama administration urged exclusion of the AMT provision when the House drafted its stimulus bill, House Ways and Means Committee Charles Rangel said last week.

Obama visited the Capitol today to seek support for the legislation from House and Senate Republicans. Before his arrival, House Minority Leader John Boehner and House Minority Whip Eric Cantor urged rank-and-file members at a closed-door meeting to vote against the plan unless more tax relief is added, said a Republican leadership aide.

The AMT amendment is one of as many as 226 under consideration for the tax legislation, which would ease tax burdens on businesses by $128.1 billion this year and next. Another part of the bill would let companies convert losses into tax refunds and provide new relief from taxes due on the value of forgiven corporate debt.

“Today we once again live in times that require action,” Finance Committee Chairman Max Baucus of Montana said as his panel began deliberations. “If we do not act, employment will fall by more than 2 percent in 2009.”

Barack Obama May Allow Earmarks Into Stimulus Package

Although he said pledged not to, Barack Obama may be retracting his former statements to not to let earmarks intrude on his massive stimulus package. Below is a quote from an entry on the Reason Blog explaining Obama’s new plan, but the full article can be read here.

“We are going to ban all earmarks—the process by which individual members insert pet projects without review," he explained. "We will create an economic recovery oversight board made up of key administration officials and independent advisors to identify problems early and make sure we are doing all we can to solve it."

Well, forget about it. In these tough times, the last thing you want to do is insist on principles. (And let's leave aside for the moment the question of whether the stimulus package is itself simply a way of pushing massive earmarked spending).

Lawmakers and Financial Experts Question Obama's Tax Cuts

From Washington Post.com:

At least two tax cuts that are part of Barack Obama's stimulus package have been criticized by lawmakers, tax experts and economists for being potentially too expensive and ineffective, signaling that they are likely to face resistance on Capitol Hill as congressional leaders begin direct negotiations with the president-elect's team.

Both Democrats and Republicans have questioned a provision that would provide a $3,000 tax credit to companies for every job created and, possibly, for every job spared. They contend that the idea would be ripe for abuse and difficult to administer.

"I'm not that excited about that," said Sen. John Kerry (D-Mass.), as he left the first bipartisan Senate Finance Committee meeting this morning. A parade of lawmakers echoed the sentiment as they departed. "A lot of questions have been raised about the economic good it does," said Sen. Charles Grassley (Iowa), the senior Republican on the panel.

Lawmakers are also skeptical about a measure that would allow companies to deduct large portions of recent losses. The proposal would benefit companies that have been hit hardest by the recession, including in the banking and real estate sectors, but experts worry that costs could soar because so many would be eligible.

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AARP Upset Over Stimulus Package

According to Yahoo News, the AARP is speaking out against Congress’ plans for an economic stimulus package. The plan could give individual taxpayers as much as $600 in rebates, and an additional $300 per qualifying child. The rebates would phase out gradually for individuals whose adjusted gross income exceeds $75,000 and for couples with incomes above $150,000.

However, the package would exclude any one who earns less than $3,000 from earned income. Therefore about 20 million senior citizens living off Social Security would not be eligible. "Less than half of all Americans 65 and older would get it," claims AARP spokesman Jim Dau.

President Bush would like to push the plan through ASAP. "I strongly believe it would be a mistake to delay or derail this bill," Bush said. "I understand the desire to add provisions from both the right and the left," he noted. President Bush added that doing so would be in error and would delay the purchasing power boost the stimulus package is designed to create to confront a feared impending recession.

Tax Rebates to Complicate Tax Filing in 2009

As Congress works to iron out the details of an economic stimulus package, many people are already predicting complications for tax day on April 15, 2009. If approved, the stimulus proposal would take the form of checks to be sent out this spring. However, they are expected to be advances on a one-year tax cut in 2008. The IRS is going to use data from the 2007 tax year to calculate each households check. Adult taxpayers are expected to receive between $500 and $600 and there is also going to be a $300 per child credit. Therefore households with two parents and two children could get as much as $1,800 from the federal government.

Unfortunately, since the IRS is using 2007’s data there are going to be some problems for individuals passing the age of being a qualified child in 2008. In these situations the parents will be mailed a check this Spring that they will have to repay come next year’s tax filing season. Additionally, if a taxpayer's child passes away during the year they would also have to return the money.