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The American Recovery Reinvestment Act and your business – How can you benefit?

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Editor’s note: Scott Duda, audit partner with Cherry, Bekaert & Holland, recently discussed how the American Recovery and Reinvestment Act and how it can affect a business in a podcast.

What types of criteria will make a difference in regard to how much the stimulus package will affect a business – i.e. small versus large businesses, amount of revenue generated and the number of employees?

Well, there are components of the Recovery Act that are dependent on whether or not the business qualifies as a small business. Depending on the provision you are talking about, the criteria may be revenue or even number of employees. In general, any business that had less than $15 million in revenue in 2008 or employed, on average, less than 500 employees would be deemed a small business under this act.

There are two specific provisions that will affect worker withholdings and employment tax returns – the Making Work Pay credit and the COBRA health insurance extension. Can you discuss these two provisions and how they will affect employees?

These two provisions are probably the ones that most people will notice immediately. The Making Work Pay credit, which just came into effect, is a credit for married individuals with an AGI of less than $150,000 or individual filers with an AGI of less than $75,000. Unlike last year’s stimulus check, which, for better or worse, most individuals used to pay down debt, this credit will be provided to individuals through updated withholding tables. The idea here is to get the money to the individual in smaller amounts consistently throughout the year so that he or she will be more likely to spend it, and therefore stimulate the economy.

The COBRA health insurance subsidy allows individuals to pay 35 percent of their COBRA premiums, and their former employer will pay 65 percent. The employer is reimbursed through a payroll tax credit. This subsidy is provided for all eligible filers from September 1, 2008 through December 31, 2009. After the nine-month subsidy expires, individuals will still be eligible to be insured for another nine months through their former employer’s plan, but at that point they are responsible for 100 percent of the cost. It may be cheaper at that point to purchase their own insurance, so it’s a good idea to do some research while they are taking advantage of that nine-month subsidy.

What are the key ARRA provisions that affect small businesses?

There are three that come to mind. First, for all businesses, the bonus depreciation, which allows businesses to expense 50 percent of eligible property rather than capitalize and depreciate it, is extended into 2009. This obviously lessens their taxable income in the current year.

Next, for smaller businesses, the first $250,000 of assets purchased can be expensed rather than capitalized and depreciated, again allowing for an accelerated tax deduction. This encourages businesses to continue purchasing new assets.

Finally, and again for small businesses with less than $15 million in 2008 revenue, net operating losses can now be carried back five years rather than the previously allowed two years.

How important is it to be proactive to benefit from these incentives?

This is extremely important for several reasons. First, much of the Recovery Act money relates to grants and loans. For those businesses that have previously contracted with the federal government, these monies will be available for the technology, energy and infrastructure projects we’ve all been hearing so much about. For those who haven’t contracted with the federal government previously, the hurdles to obtain these grants or to comply with the reporting once a grant is received may be too difficult to overcome. Partnering with a current federal contractor could be an option to make sure your business doesn’t miss out on these opportunities.

Another portion of the package is destined for state and local governments to prevent tax increases at those levels. The remaining monies are available for commercial businesses and individual tax relief. This is about 40 percent of the total act. Most of this is provided in the form of tax reductions, such as the provisions we discussed earlier. However, unless businesses and self-employed individuals are reducing their estimated tax payments in anticipation of these new laws, they’re not going to see the benefit of it until they file their 2009 tax return next year. Including these laws in your tax planning can provide increased cash flow now, which is the overall goal of the stimulus package. Also, your competitors may be adjusting their tax strategies or pursuing these opportunities to receive Recovery Act monies directly.

How can I get personal advice about my eligibility for specific provisions in the ARRA for my business?

The federal government has created several Web sites: www.grants.gov for grant funds; www.fedbizopps.gov for contracting opportunities; and www.govloans.gov for loans. Those all provide useful information.

Cherry, Bekaert & Holland is also proactively meeting with all of our clients to discuss the opportunities in front of them as it relates to the recovery act.

(Cherry, Bekaert & Holland held a seminar on May 15 that discussed these opportunities in greater detail along with related topics pertaining to personal and business finance.)

What is the most important factor to keep in mind when assessing what to do with my business’s stimulus money?

The best mindset right now is to think long term. The provisions of the recovery act are a great opportunity for businesses to position themselves now for the eventual recovery. The successful businesses of tomorrow will take advantages of these provisions and this act today and ensure that they’re better positioned, both now and in the future.

Editor’s note: The transcript was provided by MMI Public Relations.