Recovery Act Provides Important New Tax Benefits for Small Businesses

Published By Timothy D. Brown

Recovery Act Provides Important New Tax Benefits for Small Businesses

On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act of 2009 (commonly referred to as the “Recovery Act”) into law. While the impact of the Recovery Act on individuals has been widely publicized, the Recovery Act also enacted a number of beneficial tax provisions for businesses. These provisions are highlighted below.

  1. Election for longer NOL carryback period. In general, net operating losses (“NOLs”) may be carried
    back two years and forward twenty years. However, for NOLs arising in a tax year beginning or ending in 2008, the Recovery Act permits small businesses to elect to increase the NOL carryback period from two years to three, four, or five years. A small business for this purpose is one whose average annual gross receipts are $15 million or less for the three-year period ending with the tax year in which the loss arose. The longer NOL carryback period means that small businesses that
    experienced losses can seek immediate refunds of income taxes paid in earlier years.
  1. Expensing limits continued for another year. The Recovery Act extended the liberal expensing rules for purchases of business machinery and equipment. The expensing rules allow businesses to take a current deduction for the cost of business machinery and equipment, rather than recovering those costs through depreciation. For tax years beginning in 2009, qualifying businesses have the option to currently deduct up to $250,000. However, the $250,000 deduction is decreased, dollar-for-dollar, for purchases in excess of $800,000.


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