There are a number of provisions in the “American Recovery & Reinvestment Act of 2009” (also knows as the “Stimulus Bill”) that may impact the HVAC industry. Here is a brief summary of ARRA provisions that may affect you and your business.
Energy Tax Credits: The residential energy property tax credit has been increased from 10% to 30% with a maximum credit amount of $1,500 for 2009 & 2010 combined on qualified energy efficiency improvements made to your principal residence. There is no maximum credit amount for investments in solar water heaters and geothermal heat pumps as long as they meet the energy specific standards and installations of these systems made through December 31, 2016 are eligible for the credit.
Making Work Pay Credit: A payroll tax credit of 6.2% of earned income (maximum: $400-single; $800-married) is available for 2009 and 2010. This credit is delivered via lower income tax withholding. The credit phases out for those with adjusted gross income of $75,000 single and $150,000 couples. Employers were required to start using the new withholding tables that reflect this credit on April 1, 2009. This is the government’s attempt to put more money in your pocket now rather than a credit on your tax return at the end of the year. NOTE: Retirees and those on fixed incomes (with no earned income) will receive a one-time $250 payment in lieu of the credit.
Bonus Depreciation: The law extends the 50% bonus depreciation for assets purchased through December 31. 2009. Limits for first-year depreciation on autos is increased to $10,960 ($11,160 for light trucks & vans) for 2009.
I.R.C. Section 179 Expense: The law extends the increased small business expensing amount of $250,000 (with an investment limit of $800,000) for assets purchased through December 31, 2009.
Net Operating Loss (NOL) Deduction: For 2008 tax returns, small businesses (average annual gross receipts of $15 million or less over the last 3 years) can elect to carry back NOLs 3, 4 or 5 years. NOLs typically can only be carried back 2 years. If you’ve already filed your business tax return for 2008, you may make the election and file an amended return for the earliest tax year that the NOL is going to be used.
S Corporation Built-In Gains: The 35% tax on gains on assets owned prior to the switch from a “C” corporation to a “S” corporation is suspended for assets sold in 2009 & 2010 by companies who elected “S” status more than seven years prior to the year of the gain.
Estimated Tax Payments: The minimum threshold for estimated tax payments for individuals whose income primarily comes from a small business in 2009 is reduced to 90% of their 2008 or 2009 tax liability. The individual’s adjusted gross income (AGI) must be less than $500,000 and more than 50% of the individual’s gross income must be income from a small business (500 or fewer employees, on average).
COBRA Medical Coverage: Effective March 1st, Cobra-eligible employees who were involuntarily terminated between September 1, 2008 and December 31, 2009 can elect to retain their health insurance coverage and receive a 65% subsidy on the premiums for up to 9 months. The former employee pays 35% of the premium and the balance (65%) is paid by the employer. The employer receives a credit on their payroll taxes for the premiums paid. This provision burdens the employer. Those employees who left before February 17, 2009 and declined COBRA coverage must now be notified that they have 60 days to accept it. Additionally, it is the employer’s responsibility to locate former employees and notify them that they have another opportunity to sign up for the COBRA coverage.
This is a very basic overview of the Stimulus Bill. It’s imperative that you check with your CPA or tax advisor for specific, detailed assistance on how the law impacts your situation.
U.S. Treasury Department Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. This article is not intended to be comprehensive in nature and competent professional tax advice should be sought in determining the issues that impact your specific situation.
Michael A. Bohinc is a certified public accountant in Cleveland, OH. He can be reached at: 440.708.2583; email [email protected]