Tax Law Change Means Cash for Cos.

It’s Christmas in November for money losing businesses, which will see cash in their stockings, thanks to a new law OK’d by Congress.

Businesses large and small that have suffered losses during the economic downturn got an early Christmas present from Congress: A law signed by President Obama on Nov. 6 allows them to use losses from 2008 and 2009 to offset profits as far back as 2003. That means they can claim a refund for income taxes paid on the earlier profits. Lawmakers decided this injection of capital was a good way to boost the economy, hopefully spurring production and hiring.

Manufacturers are giving the new law a big thumbs-up. Around 40% of all U.S. small and midsize companies are expected to post net operating losses in 2009, twice the number that reported losses last year, according to the National Association of Manufacturers (NAM), so look for billions of dollars to flow to firms claiming refunds. Manufacturers will use the cash to finance ongoing operations and retain jobs, NAM says.

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Senior Tax Editor, the Kiplinger letters