Stimulating facts for your practice
You probably don’t have time to read through the 407-page, $787 billion “American Recovery and Reinvestment Act of 2009.” But the economic stimulus package, signed into law by President Obama on Feb. 17, contains some important information for individuals, as well as small businesses such as veterinary practices.
If you are looking to secure a loan from the U.S. Small Business Association (SBA), or purchase some new equipment, now might be the time to do so.
The package includes $730 million for the SBA, and makes changes to the SBA’s lending and investment programs. The Obama Administration also announced this week a series of measures directed at making more credit available to small businesses, and several small-business-friendly tax initiatives.
The $730 million will go toward reducing lending fees, increasing loan guarantees and other enhancements of SBA programs geared toward unlocking the credit market. Some key features of the bill in terms of the SBA are:
90 percent guarantee – The stimulus bill allows the SBA to raise its loan guarantee up to 90 percent for eligible loans. In theory this will encourage lenders to extend more capital to small businesses, since the SBA guarantee will cover more of the loan. Previous loan guarantees were up to 85 percent for loans of $150,000 and less, and up to 75 percent on loans over $150,000.
Business stabilization loans – Under the bill, $225 million would go toward a new deferred-payment loan program for loans up to $35,000. A practice could qualify for this loan if it used the money to make payments on another existing loan.
Microloans – These small loans of up to $35,000 are normally aimed at low-income individuals, women and minorities, and are paired with technical assistance for start-up, newly established or growing small businesses. The stimulus bill increases funding to this program.
Secondary market expansion - On March 16, President Obama and Treasury Secretary Timothy Geithner announced a plan to further help U.S. small businesses.
Under the plan, up to $15 billion will be used to spur SBA lending by unfreezing the secondary credit market. The Treasury Department will do this by using the money to buy securities backed by SBA loans, allowing lenders to sell the loans and free up capital to make new loans.
“These purchases, combined with higher loan guarantees and reduced fees, will help provide lenders with the confidence that they need to extend credit, knowing they both have a backstop against their risk and a source of liquidity,” says a White House news release.
The administration will also require the 21 largest banks receiving government money to report their small business lending every month. Geithner also said every bank nationwide must report their total lending to small businesses in their quarterly reports, instead of just once a year.
The Internal Revenue Service also announced a new provision under the stimulus package that enables small businesses (with less than an average of $15 million in gross receipts over a three-year period) with a net operating loss in 2008 to elect to offset this loss against income earned in up to five prior years. The previous law only allowed a net operating loss carryback for two years.
According to the IRS, the stimulus bill also includes the following small-business-related tax provisions:
Sec. 179 deduction increases to $250,000: An expanded Sec. 179 deduction allows small businesses to write off up to $250,000 of qualified equipment in 2009.
Reduction of estimated tax payments: Normally, small businesses have to pay 110 percent of their previous year’s taxes in estimated taxes. The Recovery Act permits small businesses to reduce their estimated payments to 90 percent of the previous year’s taxes.
Extension of bonus depreciation deductions through 2009: The 50-percent bonus depreciation is extended through 2009, allowing businesses to take a larger tax deduction within the first year of a property’s purchase.
Capital gains tax break for investment in small business: Investors in small business who hold their investments for five years can exclude from taxation 75 percent of their capital gains.
Strategic Veterinary Consulting CPA Elise Lacher said with all the new rules and provisions, you should be extra careful this year with your tax returns.
“Be aware that IRS is going to be increasing their examination of payroll tax return this year,” Lacher said. “They are aware that there are many mistakes made on the returns. If you do them in-house, make sure you know what you are doing. If you outsource to a competent payroll company, this won’t affect you.”
Amid all these tax incentives, one thing that could pose a headache for practices is the new COBRA insurance rule.
“For practices who are subject to COBRA regulations, the employers are now responsible for 65 percent of the premiums for employees who leave and are continuing their health insurance coverage through COBRA,” Lacher said.
Employers are required to cover the subsidy, provided the eligible employees contribute their 35 percent share. The rule applies to employees who were laid off between Sept. 1, 2008 and Dec. 31, 2009. Employers can recover the 65 percent subsidy by taking the subsidy amount as a credit on quarterly employment tax returns, according to the IRS. The IRS has information on the new COBRA subsidy rules on its website.
The main individual benefits in the act are regarding vehicle loans, first-time home-buyer tax credit and less tax withheld on paychecks.
“Interest on loans to purchase new vehicles will be deductible in 2009 even if you don’t itemize,” Lacher said. “To encourage you to take advantage of the deals car makers are offering, the IRS will allow the deduction for interest both to itemizers and non itemizers alike.”
Under the bill, the first-time homebuyer tax credit was increased from $7,500 to $8,000 for qualified buyers. Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit. Also, unlike last year’s $7,500 credit, the 2009 credit will not have to be repaid.
A slightly larger paycheck could also be in your and your employees’ future.
“Individuals will be receiving a 6.2% payroll credit up to a maximum of $400 for single individuals and $800 for married people,” Lacher said. “The IRS will be mailing out new withholding tables and accounting software companies will be sending you updates for you software programs. If you use a payroll service they will take care of this for you.”