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The information in this e-newsletter is for general guidance only, and does not constitute the provision of legal advice, tax advice,
accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used
as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or
taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular
situation.
The author of the tax articles in this e-newsletter did not intend nor write the advice to be used to avoid any penalty imposed by a
taxing authority, nor may any user/recipient of this document use this document's written tax advice for that purpose. This document's
tax advice was written specifically to support the promotion or marketing of the transaction/matter addressed by the written tax advice.
Therefore, any user/recipient of this document should seek an independent tax professional's advice regarding the user/recipient's
particular circumstances.
The information is provided "as is" with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and
without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for
a particular purpose.
The information in this e-newsletter is for general guidance only, and does not constitute the provision of legal advice, tax advice,
accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used
as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or
taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular
situation.
The author of the tax articles in this e-newsletter did not intend nor write the advice to be used to avoid any penalty imposed by a
taxing authority, nor may any user/recipient of this document use this document's written tax advice for that purpose. This document's
tax advice was written specifically to support the promotion or marketing of the transaction/matter addressed by the written tax advice.
Therefore, any user/recipient of this document should seek an independent tax professional's advice regarding the user/recipient's
particular circumstances.
The information is provided "as is" with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and
without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for
a particular purpose.
| Serving the Central Pennsylvania area since 1981 |
| Robert A. Romako, CPA |
| BUSINESS CHANGES IN THE STIMULUS BILL |
SPECIAL EDITION:
REVIEW OF CONGRESSIONALLY-APPROVED STIMULUS PACKAGE
This summary reflects the compromises worked out between the House and Senate versions of the stimulus package,
officially known as the American Recovery and Reinvestment Act of 2009. President Obama plans to sign the Act into
law on Tuesday, February 17. About 35% of the Act’s 1,011 pages of text relate to tax issues. To make review easier for
my readers, I have broken these down into separate sections covering individual and business provisions. Please note
that in the interest of simplicity and readability, certain details of the tax provisions have been simplified or
omitted. Readers are urged to talk to your own tax advisor to see how the new law might apply to you. And, as
always, please feel free to contact me with your questions and concerns.
Additional 50% first-year depreciation extended through 12/31/09. The special 50% depreciation deduction for new
property, scheduled to expire at the end of 2008, has been extended for one more year. This provides substantial
deduction for asset costs not fully deducted using the Section 179 immediate expensing election. For example, an asset in
the 5-year recovery class would be eligible for a $60,000 depreciation deduction: 50% of $100,000 = $50,000, plus 20%
of the remaining $50,000 basis = $10,000, for the total depreciation deduction of $60,000. This deduction is especially
valuable for property rental businesses, which are not eligible for the section 179 expensing. Property owners
contemplating renovations or appliance replacements may want to schedule these for 2009 to obtain a faster write off.
Note that there is no AMT depreciation adjustment for the 50% bonus depreciation.
Additional first-year depreciation for cars, light trucks and vans. The scheduled limitation on first-year
depreciation for new autos has been increased by $8,000 for autos placed in service in 2009. This increases the first-
year depreciation total to $10,960 (assuming the “regular” first-year depreciation amount of $2,960 applicable to 2008 is
not changed in 20009). For light trucks and vans (minivans and SUV’s built on a truck chassis), the maximum first-year
deduction will be $11,160 (again assuming the regular first-year limit of $3,160 for 2008 remains unchanged in 2009).
Note that autos, light trucks and vans must have a greater than 50% business use to qualify for the additional first-year
depreciation.
Section 179 depreciation expensing expanded. The Act increases the Section 179 expensing amount to $250,000
for 2009 – essentially an extension of the amount that was available in 2008. The amount eligible for expensing begins to
phase out once purchases exceed $800,000. In contrast with the bonus depreciation provisions, Section 179 expensing is
available for new or used property. As with bonus depreciation, the Section 179 deduction does not create an AMT tax
preference. In 2010, the Section 179 expensing amount drops back to $25,000, with a limit of $500,000 on purchases
before start of the phase-out. For Pennsylvania tax purposes, C corporations can take up to the $250,000 Federally-
allowable limit, but S corporations, partnerships, LLCs and LLPs will be limited to $25,000 in 2009.
Net operating loss carryback periods expanded. For certain “small” businesses – those with gross receipts of $15
million or less – the periods open to carry back net operating losses have been expanded from 2 to 5. The expanded
carryback periods are only available for either (1) tax years ending in 2008 or 2009, or (2) at the taxpayer’s election, tax
years beginning in 2008 or 2009. The taxpayer must file an irrevocable election in the year of the loss indicating the
number of years of carryback. In lieu of carryback, the taxpayer may elect to carry the loss forward for a period of 20
years. After 2009, the loss carryback period reverts to 2 years.
S corporation built-in gains tax. For regular (“C”) corporations that make an election to convert to an S corporation, a
tax on the amount of built –in gains applies for a period of 10 years following the S election. The Act shortens the period
subject to the built-in gains tax to 7 years for conversions in tax years beginning in 2009 and 2010. Businesses which had
previously converted from C to S in a year prior to 2009 remain subject to the 10-year period for built-in gains tax.
New Work Opportunity Tax Credit targeted groups. The Work Opportunity Tax Credit provides employers a tax
credit of 40% of first-year wages and 50% of second-year wages in return for hiring employees within certain targeted
groups. The Act expands the qualifying groups to include unemployed veterans (those who served in the Armed Forces
for at least 180 days in the 5-year period before date of hire and have received unemployment benefits for at least 4
weeks in the 1-year period before date of hire). The second new class is disconnected youth (someone between the ages
of 16 but not yet 25, who has not regularly attended school during the 6 months preceding date of hire and who was not
regularly employed during this period, and is not considered readily employable because of a lack of sufficient skills).
Since the credits can be considerable, employers may do well to consider exploring hiring geared to these targeted
groups.
COBRA benefits expanded. The Act allows employees who are involuntarily separated from service between
September 1, 2008 and January 1, 2010 to pay only 35% of the cost of their COBRA insurance premiums. The former
employer would pay the difference, but would deduct this amount from Federal and FICA tax deposits.
Qualified Small Business Stock sale exclusion. Under current law, owners of “qualified small business stock” may
exclude 50% of the gain on sale on sale, and pay tax at a maximum of 28% on the balance, provided the stock is held for
at least 5 years. For qualified small business stock acquired after the date of enactment and before January 1, 2011, the
50% gain exclusion is increased to 75%. This rule is designed to encourage investors to take risks in investing in small
businesses.
REVIEW OF CONGRESSIONALLY-APPROVED STIMULUS PACKAGE
This summary reflects the compromises worked out between the House and Senate versions of the stimulus package,
officially known as the American Recovery and Reinvestment Act of 2009. President Obama plans to sign the Act into
law on Tuesday, February 17. About 35% of the Act’s 1,011 pages of text relate to tax issues. To make review easier for
my readers, I have broken these down into separate sections covering individual and business provisions. Please note
that in the interest of simplicity and readability, certain details of the tax provisions have been simplified or
omitted. Readers are urged to talk to your own tax advisor to see how the new law might apply to you. And, as
always, please feel free to contact me with your questions and concerns.
Additional 50% first-year depreciation extended through 12/31/09. The special 50% depreciation deduction for new
property, scheduled to expire at the end of 2008, has been extended for one more year. This provides substantial
deduction for asset costs not fully deducted using the Section 179 immediate expensing election. For example, an asset in
the 5-year recovery class would be eligible for a $60,000 depreciation deduction: 50% of $100,000 = $50,000, plus 20%
of the remaining $50,000 basis = $10,000, for the total depreciation deduction of $60,000. This deduction is especially
valuable for property rental businesses, which are not eligible for the section 179 expensing. Property owners
contemplating renovations or appliance replacements may want to schedule these for 2009 to obtain a faster write off.
Note that there is no AMT depreciation adjustment for the 50% bonus depreciation.
Additional first-year depreciation for cars, light trucks and vans. The scheduled limitation on first-year
depreciation for new autos has been increased by $8,000 for autos placed in service in 2009. This increases the first-
year depreciation total to $10,960 (assuming the “regular” first-year depreciation amount of $2,960 applicable to 2008 is
not changed in 20009). For light trucks and vans (minivans and SUV’s built on a truck chassis), the maximum first-year
deduction will be $11,160 (again assuming the regular first-year limit of $3,160 for 2008 remains unchanged in 2009).
Note that autos, light trucks and vans must have a greater than 50% business use to qualify for the additional first-year
depreciation.
Section 179 depreciation expensing expanded. The Act increases the Section 179 expensing amount to $250,000
for 2009 – essentially an extension of the amount that was available in 2008. The amount eligible for expensing begins to
phase out once purchases exceed $800,000. In contrast with the bonus depreciation provisions, Section 179 expensing is
available for new or used property. As with bonus depreciation, the Section 179 deduction does not create an AMT tax
preference. In 2010, the Section 179 expensing amount drops back to $25,000, with a limit of $500,000 on purchases
before start of the phase-out. For Pennsylvania tax purposes, C corporations can take up to the $250,000 Federally-
allowable limit, but S corporations, partnerships, LLCs and LLPs will be limited to $25,000 in 2009.
Net operating loss carryback periods expanded. For certain “small” businesses – those with gross receipts of $15
million or less – the periods open to carry back net operating losses have been expanded from 2 to 5. The expanded
carryback periods are only available for either (1) tax years ending in 2008 or 2009, or (2) at the taxpayer’s election, tax
years beginning in 2008 or 2009. The taxpayer must file an irrevocable election in the year of the loss indicating the
number of years of carryback. In lieu of carryback, the taxpayer may elect to carry the loss forward for a period of 20
years. After 2009, the loss carryback period reverts to 2 years.
S corporation built-in gains tax. For regular (“C”) corporations that make an election to convert to an S corporation, a
tax on the amount of built –in gains applies for a period of 10 years following the S election. The Act shortens the period
subject to the built-in gains tax to 7 years for conversions in tax years beginning in 2009 and 2010. Businesses which had
previously converted from C to S in a year prior to 2009 remain subject to the 10-year period for built-in gains tax.
New Work Opportunity Tax Credit targeted groups. The Work Opportunity Tax Credit provides employers a tax
credit of 40% of first-year wages and 50% of second-year wages in return for hiring employees within certain targeted
groups. The Act expands the qualifying groups to include unemployed veterans (those who served in the Armed Forces
for at least 180 days in the 5-year period before date of hire and have received unemployment benefits for at least 4
weeks in the 1-year period before date of hire). The second new class is disconnected youth (someone between the ages
of 16 but not yet 25, who has not regularly attended school during the 6 months preceding date of hire and who was not
regularly employed during this period, and is not considered readily employable because of a lack of sufficient skills).
Since the credits can be considerable, employers may do well to consider exploring hiring geared to these targeted
groups.
COBRA benefits expanded. The Act allows employees who are involuntarily separated from service between
September 1, 2008 and January 1, 2010 to pay only 35% of the cost of their COBRA insurance premiums. The former
employer would pay the difference, but would deduct this amount from Federal and FICA tax deposits.
Qualified Small Business Stock sale exclusion. Under current law, owners of “qualified small business stock” may
exclude 50% of the gain on sale on sale, and pay tax at a maximum of 28% on the balance, provided the stock is held for
at least 5 years. For qualified small business stock acquired after the date of enactment and before January 1, 2011, the
50% gain exclusion is increased to 75%. This rule is designed to encourage investors to take risks in investing in small
businesses.
FEBRUARY 16, 2009
| Robert A. Romako, CPA Phone:717.774.3047 |