Perhaps the most significant business extensions are the one-year extension of the 2008 Bonus Depreciation and Section 179 expensing limits. The extension of these two provisions allows businesses to invest in machinery and equipment more freely and to quickly recuperate the cost.
Generally, businesses can elect to expense, rather than depreciate, the cost of used or new tangible personal property put into service during the tax year, up to a specified limit. Prior to 2008, the limit was $125,000 and adjusted annually for inflation. The 2009 inflation adjusted limit was $133,000.
Extended Section 179 places limits on the amount of tangible personal property a business can acquire before the expensing limit begins to phase out. The pre-2008 amount was $500,000 and the 2009 inflation adjusted amount is $530,000. The Economic Stimulus Act of 2008 permitted a one-year enhancement of the Section 179 limits, therefore increasing the expensing limit to $250,000 and the investment ceiling to $800,000. The ARRA 2009 extends this enhancement another year; until December 31, 2009. Without further legislation the Section 179 limits for expensing and investment ceiling will drop back to $125,000 and $500,000 respectively for 2010.
The Economic Stimulus Act of 2008 allowed bonus depreciation for assets placed in service during 2008. Under bonus depreciation, businesses may immediately deduct half of the cost of “qualified property” as a depreciation deduction in the year of the purchase. The balance of the cost is normal depreciable life. “Qualified property” is defined as the purchase of new property (not used) with a recovery period of twenty years or less including most new property other than buildings and their structural components. The ARRA 2009 extends bonus depreciation for another year, ending December 31, 2009.
Another significant change provided by the ARRA 2009 is the special rule for small businesses utilizing net operation loss (NOL) carrybacks. Businesses that gross average receipts of $15 million or less are considered “small businesses” and can elect a longer NOL carryback period for a tax year beginning or ending in 2008. For NOL’s occurring in tax years that begin and end in 2008, ARRA 2009 allows a “small business” taxpayer to increase the carryback period to either three, four or five years. A longer NOL carryback period gives small businesses a greater opportunity to recover taxes paid in earlier years.
Contact your accountant for more information on tax benefits for your store.