Expanded NOL's, Section 179 Deduction & Bonus Depreciation

 

There are several tax incentives small businesses may take advantage of this tax season, before the October 15th deadline (for those who received an extension). The Worker, Homeownership, and Business Assistance Act of 2009 expanded the Net Operating Loss (NOL) Carryback option, while the American Recovery and Reinvestment Act of 2009 increased the Section 179 Deduction and extended the bonus depreciation. These tax incentives may be especially helpful for contractors and other small business owners who have been hurt by the economy.

Expanded Net Operating Loss Carryback

• Businesses and contractors that have suffered net operating losses (NOL) now have greater flexibility in carrying the loss back to a prior year to get a tax refund.


• These net operating loss provisions allow businesses to carry the loss back three, four, or five years, or a loss from operations for four or five years, in order to offset taxable income in the preceding taxable years. (An NOL can typically be carried back for only two years).


• The small business (revenues less than $15 million in gross receipts over a three-year period) limitation on NOL carrybacks has been removed, and thus nearly all taxpayers are eligible for the five-year carryback period. However, an NOL or loss from operations carried back five years (yet not four or three) may not offset more than 50 percent of the taxpayer's taxable income in the fifth preceding year.


• Eligible individuals have until October 15, 2010 to choose this expanded carryback option. Eligible calendar-year corporations had until September 15, 2009.

Section 179 Deduction

• Whereas businesses typically recover capital investments through annual depreciation deductions spread over a number of years, the section 179 deduction allows small businesses to expense capital purchases, up to $250,000, for the cost of machinery, equipment, vehicles, furniture, and other qualifying property placed in service during 2009. This limit is reduced by the extent section 179 property placed in service in the tax year exceeds $800,000.


• A package of tax breaks for small businesses currently before the Senate for consideration would allow higher expensing limits (up to $500,000 of the cost of assets put in service in 2010 and 2011). After $2 million of assets are placed in service, the $500,000 write-off would begin to phase out (the current phase-out begins at $800,000).

Bonus Depreciation

• Businesses can take advantage of the special 50% depreciation allowance, also known as bonus depreciation, thus allowing for quick recovery of capital expenditure costs. https://askcompetentlawyer.com/ For all 2009 purchases, businesses may immediately expense 50% of capital expenditures for new items. This tax-saving opportunity was designed to encourage investments by allowing businesses to write them off more quickly.


• The package of tax breaks for small businesses currently before the Senate for consideration would reinstate the 50% percent bonus depreciation for 2010.


• Businesses may take a total depreciation deduction of $2,960 for passenger automobiles used in the business and first placed in service in 2009. ($10,960 if the special depreciation allowance applies). Further, businesses may take a total depreciation deduction of $3,060 for trucks and vans used in the business and first placed in service in 2009. ($11,060 if the special depreciation allowance applies).