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After a great deal of political maneuvering, H.R. 1, the American Recovery and Reinvestment Act of 2009 (Stimulus Act), was approved by Congress and signed into law by the President. The Stimulus Act provides tax relief for individuals and businesses alike. Individuals: A provision of the Stimulus Act makes many individual taxpayers eligible for the Making Work Pay Credit (Work Credit). Eligible taxpayers will receive a 6.2% reduction in their federal income tax withholding or estimated payment requirement in 2009 and 2010. The maximum Work Credit benefit is $400 for individuals and $800 for families. This benefit will begin to phase-out when an individual's adjusted gross income (AGI) reaches $75,000 ($150,000 for married couples filing jointly).
The Stimulus Act also provides a one-time payment of $250 to adults eligible for social security, railroad retirement, or veterans' benefits and individuals of any age receiving SSI benefits. In addition, the Stimulus Act provides a one-time $250 ($500 for a joint return where both spouses are eligible) refundable credit to certain federal and state pensioners who are not eligible for Social Security benefits. The Stimulus Act modifies and renames the Hope Scholarship Credit. The American Opportunity Tax Credit (Opportunity Credit) provides assistance to those seeking a college education. Eligible taxpayers can receive an Opportunity Credit of up to $2,500 per eligible student in 2009 and 2010 to cover the cost of qualified tuition and related expenses paid during the year. A related provision allows students to use 529 Plan education distributions for the purchase of computers and computer technology in 2009 and 2010, similar to Education Savings Accounts.
The First-time Home Buyer Credit was increased from $7,500 to $8,000 by the Stimulus Act and the obligation to repay the credit was generally eliminated for homes purchased after December 31, 2008. The Stimulus Act also extends availability of this credit for an additional five months through November 30, 2009.
To encourage the sale of automobiles, the Stimulus Act provides a deduction for state and local sales taxes and the excise tax paid on the purchase of new cars, light trucks, motorcycles, and motor homes purchased this year.
The Stimulus Act contains provisions extending the tax credits for energy-saving improvements to existing homes; increasing the Earned Income Credit and the refundable portion of the Child Credit; increasing and extending unemployment benefits; eliminating the federal tax on the first $2,400 of unemployment benefits; and subsidizing COBRA payments for certain involuntarily terminated workers.
Finally, the Stimulus Act provides relief from the Alternative Minimum Tax (AMT) in 2009 for 26 million families by increasing the amounts exempt from the AMT.
Businesses: The Stimulus Act temporarily extends the higher Section 179 expense amounts available in 2008 for an additional year. Under this provision, business owners can elect to immediately expense up to $250,000 of qualified equipment purchased during the 2009 tax year, rather than depreciate it over time. This benefit will continue to phase-out on a dollar-for-dollar basis once qualified equipment purchases exceed $800,000.
The Stimulus Act also extends availability of the 50% bonus depreciation provision for capital expenditures incurred in 2009 (2010 for aircraft and long-production-period property). This provision allows business owners to take 50% bonus depreciation in the year that the property is placed in service. In addition, the Stimulus Act extends the placed-in-service deadline for the $8,000 increase in first-year depreciation provision on qualified vehicles placed in service by December 31, 2009.
The current difficult economic situation has likely caused many businesses to incur a net operating loss (NOL) in 2008. Before the Stimulus Act, NOLs could generally be carried back only two years and, if there was a tax liability in those two years, taxes paid could be refunded to the taxpayer. For 2008 NOLs, the Stimulus Act extends the two-year carry-back to three, four, or five years increasing the likelihood, availability, and amount of the refund to enhance the business's cash flow.
Other business provisions of the Stimulus Act include an increased exclusion amount for a gain from the sale of small business stock, easing of the built-in-gains rules, delayed recognition of certain cancellation of debt income, and incentives to hire unemployed veterans and disconnected youth.
Please call us if you have questions about how the Stimulus Act might impact you or your business.
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