The Fiscal year 2011 budget President Barack Obama released in February contains more than 100 potential tax changes, many of which may affect your business. Even though higher income individuals will pay about 87 percent of the more than $1 trillion in tax increases planned for the next decade, some portion will be generated by higher tax rates and reductions in itemized deductions and personal exemptions for owners of sole proprietorships, partnerships, limited liability corporations and S corporations.
Congress will be deciding whether to save each of the many tax provisions or let them expire, as they are due to expire in the next couple of years. One example is the Section 179 deduction for capital expenditures, which was increased to $250,000 last year as part of the American Recovery and Reinvestment Act (ARRA). It is sometimes called the “SUV tax loophole” or “Hummer deduction,” because it provided an incentive for businesses to purchase such qualifying vehicles. Section 179 expedites the tax benefit of capital expenditures that otherwise would be depreciated over several years. The maximum was scheduled to decrease to $134,000 this year and $25,000 in 2011. A 50 percent depreciation allowance, known as bonus depreciation, is also at stake. For more information, including a calculator and list of qualifying equipment, see www.Section179.org.
Now that Hummers are no longer available, you can take advantage of the alternative fuel motor vehicle credit. This provision of the Energy Policy Act of 2005 includes credits (under IRS Code Section 30B) for hybrid, fuel cell, heavy hybrid and advanced lean-burn technology vehicles.
Energy-efficiency tax credits are also available for improvements to new or renovated commercial buildings. These can range from $0.60 to $1.80 per square foot for investments in lighting, heating and cooling, or building-envelope components that save between 10 percent and 50 percent of projected annual energy costs. See www.energytaxincentives.org or www.efficientbuildings.org to learn more.
Green business purchases of components for fuel cell, microturbine and solar-energy systems can qualify for tax credits of up to $4,000. By the way, the 30 percent homeowner tax credit for investing in similar alternative-energy equipment has no cap and often covers installation, so watch for related opportunities to increase revenue if you do residential work. The extension of the first-time homebuyer credit of up to $8,000 may also contribute to increased investments in residential property, since it now applies to some replacement purchases, and the qualifying income limits have been raised.
If you’re a small business owner, read about the Worker, Homeownership, and Business Assistance Act of 2009 at www.whitehouse.gov/the-press-office/fact-sheet-worker-homeownership-and-.... This legislation contains a provision allowing small business owners to carry back net operating losses (NOLs) from 2008 or 2009 for as long as five years (instead of the two years formerly allowed). However, there are some controversial details; for example, the fifth year back, you are limited to half of the available taxable income for that year, but you can use the rest to offset taxable income for the other four years. In effect, you are able to gain a refund of some taxes paid during previous years.
This is an extension of a provision in the Economic Recovery Act, putting $33 billion of tax cuts in the hands of businesses this year. According to a White House press release, the “majority” of those dollars will be recovered by the government as those businesses “regain their strength and resume paying taxes.”
To spur job creation, the ARRA expands the work opportunity tax credit (WOTC) for businesses who hire unemployed veterans returning to civilian work and “disconnected youth” during 2009 or 2010. The latter applies to someone age 16–24 who has not been employed or attending school. The credit applies to 12 targeted groups, including Hurricane Katrina employees, public aid recipients and ex-felons. Notice 2009-28 provides more details, and you must request certification for these workers from your state work force agency, using IRS Form 8850 (see www.irs.gov for both the notice and the form).
For those who are firing instead of hiring, the ARRA offers a 65 percent credit to small businesses that provided assistance with COBRA premium payments. You take this credit against your employment tax liability on IRS Form 941, 943 or 944. Take advantage of this credit if you have helped any terminated employees, before the new healthcare legislation changes the rules again.
Next month, we’ll look at the benefits of the Domestic Production Activities Deduction (DPAD) and some revenue proposals from the “Greenbook.”
NORBERG-JOHNSON is a former subcontractor and past president of two national construction associations. She may be reached at email@example.com.