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Stimulus bill not a 'wow' for small business
Small-business provisions in the economic recovery bill include tax and energy incentives, but, collectively, they don’t add up to much according to small business owners across the nation.
A national survey of small business owners that was released Thursday by MerchantCircle, the largest network of local business owners in the country, revealed that only 3 percent of business owners believe the stimulus bill proposed by the Obama administration does enough for small business owners, while 65 percent say the plan does not and 31 percent say they “don’t know enough about the plan” to have an opinion. The survey polled nearly 11,000 local business owners in all 50 states.
The bill increases the expensing provision in the law that allows companies to deduct as an expense any fixed asset it purchases, such as a piece of new equipment. Last year Congress temporarily boosted the write-off from $125,000 to $250,000, and the stimulus bill extends the $250,000 cap through 2009.
The deduction is reduced for companies that buy more than $800,000 worth of capital equipment in one year, noted Tom Rosenbach, managing partner at Beene Garter. The stimulus bill also extends the bonus depreciation provision through this year, allowing companies to deduct right off the top one-half of the cost of any investments in plant or equipment.
“That’s the one thing that businesses owners do pay attention to,” Rosenbach said. “It does make a difference to them.”
For companies with gross revenues of $15 million or less, the bill extends the loss carry-back provision to five years for the 2008 tax year.
“If you have had a taxable loss, you can carry that net operating loss back and recapture some of the taxes you’ve paid in previous years. It used to be two years, but now you can go back five years,” Rosenbach explained.
Small businesses that have borrowed money they cannot repay might renegotiate with their banks to forgive some of the debt. For instance, a business might have $1 million in debt on its building and the bank might forgive $400,000. That $400,000 converts to ordinary income and is taxable. Under the stimulus bill, the payment of tax on indebtedness income can be delayed until 2014 but then has to be paid back over a five-year period, so it doesn’t really lighten the penalty, Rosenbach said.
The bill also provides companies with a per-worker tax credit for hiring recently discharged unemployed veterans and young people who have been out of work and out of school for six months.
Additionally, people who buy stock in certain small businesses and hold it for five years will receive a break on capital gains taxes of 75 percent for stock issued after the date the law is enacted and before 2011.
Collectively, are these incentives really meaningful to small businesses, and do they add up to real savings? Rosenbach said he had hoped the stimulus would provide more, particularly more incentives to create new jobs.
“The extended bonus depreciation is something that does get business owners’ attention, but most of what is in the economic recovery bill is not going to really provide a business owner with anywhere near enough incentive to retain jobs or buy additional equipment,” Rosenbach said.
“The bill really didn’t provide anything that would make business owners say, ‘Wow!’ Whatever small businesses might save through these incentives, when the Michigan Business Tax came in, it raised everybody’s taxes significantly, so their overall tax burden is not going down; it’s going up.”
The energy incentives for small businesses are slightly more meaningful, but the fact is a company first has to have the money to invest in the construction of a new energy-efficient facility or to invest in energy-efficiency improvements on an existing facility to benefit from the tax credits, Rosenbach said.
The economic recovery bill extends the Production Tax Credit for electricity derived from wind through 2012, and for electricity derived from biomass, geothermal, hydropower, landfill gas, waste-to-energy and marine facilities through 2013.
The bill introduces a 30 percent tax credit on the cost of building a new renewable energy facility, which is a substantial credit and a nice hidden gem in the bill, Rosenbach said.
The bill also provides a new manufacturing investment tax credit for investment in advanced energy facilities that manufacture components used to produce renewable energy and green technologies and advanced battery technology, or other next-generation green technologies.
Rosenbach doesn’t think business owners are going to be all that excited about the energy incentives, at least not initially. But as the economy starts to improve and energy costs go back up, those energy incentives will likely become more attractive.
West Michigan has a great record of cultivating successful entrepreneurs and business owners, Rosenbach said, and there is a model in Michigan where, if the government cooperates with businesses and gives them tax breaks, they can create jobs.
“Business owners now are going to look at all of these different avenues,” he concluded. “Maybe the silver lining is this: There are opportunities out there that business people wouldn’t look at before that they’ll look at now because every dollar matters, so maybe they’ll get some traction going.”