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.
Retailers say the tax relief comes at a crucial time because the promise of a refund will make it easier to get financing during the crucial fourth quarter, which accounts for between 25% and 50% of most retailers’ annual sales. The financing will help stores stock shelves for the holidays and let them do more seasonal hiring, according to the National Retail Federation.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Normally, businesses can carry back their net operating losses for up to only two years. Back in February, Congress OK’d legislation allowing losses to be carried back for up to five years, but only for companies with $15 million or less in average annual receipts over the years 2006 through 2008, and only on losses that businesses incurred in 2008. The newly enacted law allows the five-year carryback for companies of all sizes and applies to both 2008 and 2009 losses.
Congress added a wrinkle, however, for companies with more than $15 million in average annual receipts for 2006-2008: In situations where a company is carrying a loss back the full five years, the carryback loss can offset only 50% of income from the fifth year. For example, say your firm had a $1-million loss in 2008, and the last time it made a profit was in 2003, when its taxable income was $500,000. You would be able to claim a refund of the tax paid on $250,000, or one-half of the 2003 income.
The new law, besides containing the net operating loss provision for business, also extended and expanded the tax credit for first time home buyers. This credit of up to $8,000 was due to expire Nov. 30, but will now be available through April 30, 2010. Buyers need only sign a contract on a house by that date, and must close by June 30, 2010. The credit was also expanded beyond first timers to buyers who have owned a home for five consecutive years out of the past eight. They can qualify for up to $6,500. The credit phases out for single taxpayers with adjusted gross incomes between $125,000 and $145,000 and married couples with AGIs between $225,000 and $245,000.
For weekly updates on topics to improve your business decisionmaking, click here.
To continue reading this article
please register for free
This is different from signing in to your print subscription
Why am I seeing this? Find out more here
-
Is a Phased Retirement Right for You?
Want to keep working, just not as hard? A phased retirement may just be the answer.
By Kimberly Lankford Published
-
Four Tips to Make Your Sales Presentation a Winner
Being prepared and not being boring can go a long way toward persuading a potential customer to buy into what you’re offering.
By H. Dennis Beaver, Esq. Published
-
The Robots Are Coming... But Not For a While
The Kiplinger Letter There’s excitement in the tech sector over the potential of humanoid robots, but widespread adoption is likely to be years away.
By John Miley Published
-
Farmers Face Another Tough Year As Costs Continue to Climb: The Kiplinger Letter
The Kiplinger Letter Farm income is expected to decline for a second year, while costs continue to up-end farm profitability.
By Matthew Housiaux Published
-
H-1B Work Visa Rules Get a Revamp
The Kiplinger Letter H-1B visas allow employers to hire high-skilled foreign workers. Regulators have finalized new rules for this visa program following last fall's proposal.
By Matthew Housiaux Published
-
Woes Continue for Banking Sector: The Kiplinger Letter
The Kiplinger Letter Regional bank stocks were hammered recently after news of New York Community Bank’s big fourth-quarter loss.
By Rodrigo Sermeño Published
-
Are College Athletes Employees of Their Schools?: The Kiplinger Letter
The Kiplinger Letter A recent ruling has ramifications for labor relations and the unionization of student athletes.
By Sean Lengell Published
-
Salton Sea Clean Energy and Lithium Project Gets Approval: The Kiplinger Letter
The Kiplinger Letter California's Salton Sea is due to see the construction of a new lithium extraction and geothermal clean energy power plant.
By Matthew Housiaux Published
-
More Woes for Anheuser-Busch as a Strike Looms: The Kiplinger Letter
The Kiplinger Letter Drinkers of Anheuser-Busch beers may want to stock up soon. A looming strike threatens to shutter its U.S. breweries later this month.
By Sean Lengell Published
-
The Auto Industry Outlook for 2024
The Kiplinger Letter Here's what to expect in the auto industry this year. If you’re in the market for a car it won’t be quite as daunting as it was during the pandemic and after.
By David Payne Published