How the Stimulus Package Offers Small Business Tax Relief

Small business tax relief lowers taxes on small businesses. When Congress passed the stimulus package, it included several measures that provide just that. The creators of the stimulus package hope that those measures will increase the small businesses' operating capital and give them more resources. Unfortunately, the small business tax relief aspects of the stimulus package got overshadowed by other, more controversial portions. This document will try to clear up what the stimulus package means for small businesses and how they can take advantage of it.

Net Operating Loss Limit Increase

Net operating loss occurs when tax-deductible expenses are bigger than the taxable revenue during a certain tax year. In the past, the law has allowed business owners to carry those losses over to the next year. Under the stimulus package, small business owners who earn no more than five million in revenue during the year can carry over up to five years' worth of losses. This way, if the small business suffers losses for the next five years, it can write off the losses every year during that period.

New Equipment Purchase Write-Off

Business owners that purchase any new assets can deduct up to $250,000, so long as the resulting expenses are valued at $800,000 or less. This can include equipment, real estate and office supplies, among other things. If the small business spends more than $800,000, it can still get tax savings, but the amount the business can deduct decreases by a dollar for every extra dollar it spent. For example, if the new equipment cost $800,002, the small business owner will be able to deduct only $249,996.

It should be noted that this applies only for the 2009 tax year. Unless another stimulus package is passed, the tax write-off will still apply, but the maximum limit will be lowered to $133,000.

Sped-Up Depreciation

In addition to the above write-off, the small businesses that purchase new equipment benefit from sped-up depreciation. Depreciation occurs when the equipment ages. The idea is that as the equipment gets older, it becomes less useful, so it winds up being worth less to the business that purchased it. This loss can then be used as a tax deduction. Under the old law, small business owners could deduct up to 20 percent of the equipment's original value. The stimulus package raises that limit to 50 percent for any equipment that's worth more than $250,000. Otherwise, the old rules apply. As with the point above, this aspect of the stimulus package is valid only for the 2009 tax year.

Renewable Energy Production Tax Credit

Small businesses that create products that generate renewable energy get a 30 percent tax credit. Such products include solar panels, wind turbine parts, etc. This tax credit will remain in effect until 2014. 

Work Opportunity Tax Credit

Small businesses get tax credit for hiring employees that fall under the Work Opportunity Tax Credit Program. The stimulus package added two new groups to the program--disconnected youth and unemployed veterans. The former includes employees between 16 and 25 who did not receive any college or technical school education and were unemployed for six months prior to the date when they were hired. The latter group includes veterans who were discharged from the military between September 1, 2001, and December 31, 2010. Small businesses can apply for this tax credit only if the previously mentioned employees were hired between January 1, 2009, and December 31, 2010.