Small Business Tax Deduction

Here's something new and exciting, special tax breaks for small business.

Traditionally, while small business owners have been able to take advantage of certain tax deductions, policies and options not available to salaried employees, they have not received a fraction of the literally thousands of tax breaks, loophole and setoffs available to big business.

In 2009, however, Congress did include special tax-saving provisions in the American Recovery and Reinvestment Act (ARRA) specifically targeted to small business. That's the good news. The bad news is small business people can only drink at this particularly federal well for one year.

Unlike Fortune 1000 tax breaks, which routinely roll on forever like a mighty river, the ARRA mandated small business tax relief provisions are like a waterhole in the Mojave that runs dry immediately after the last person in line gets one tiny sip.

So the bottom line here is, if your business qualified for the ARRA tax deductions you have to claim them on your 2009 tax returns. (If didn't know that and have already filed your 2009 returns, don't worry about it. Filing an amended return at a later date is a common practice and easily accomplished. Visit IRS.gov for the details.)

Among the new small business tax breaks provided by the American Recovery and Reinvestment Act is a bonus depreciation accelerator that allows small businesses to write off a full 50 percent of the depreciation of qualifying property the same year it is acquired. Previously, depreciation, which is a deduction taken every year for the equipment's expected lifecycle, accrued at a much slower basis. Basically, the total amount you can depreciate the equipment remains the same over, say, five years but, for 2009 only, the initial tax break is better.

The other most significant small business benefit delivered by the ARRA is a provision that extends the number of tax years small businesses which lost money in 2008-2009 can apply that loss to. Previously two years, the new law allows companies to extend the loss back five years, which could if the loss in 2008 was large enough result in those businesses getting refunds on taxes they paid on profits going back to 2004.