Tax Benefits for Wisconsin Businesses
American Recovery and Reinvestment Act
The tax provisions in the American Recovery and Reinvestment Act will provide significant relief for businesses, saving Wisconsin business owners approximately $561 million in federal taxes over the next three years.
Bonus Depreciation: $235 million in federal savings for Wisconsin businesses
This provision extends to 2009 the bonus depreciation allowed for capital expenditures to recover the costs of these expenditures more quickly than the ordinary depreciation schedule. For tax year 2009, businesses that make expenditures on new capital will be allowed to immediately write-off 50 percent of those expenditures as a deduction against current income. This applies to only certain types of capital improvements.
This provision does not affect a taxpayer's Wisconsin income tax liability.
Expanded Small Business Expensing: $5.9 million in federal savings for Wisconsin businesses
Small businesses are allowed to recover the cost of certain capital investments more quickly by immediately expensing rather than depreciating new capital investments over time. The benefits of expensing are limited to $125,000 of total expenditures are phased out for firms that have total capital expenditures of more than $500,000 per year. For 2009, the amount of new expenditures that may be eligible for expensing is raised to $250,000, and businesses may have up to $800,000 in aggregate investment expenditures and still qualify for the full expense amount.
This provision does not affect a taxpayer's Wisconsin income tax liability.
5-Year Carryback of Net Operating Losses for Small Businesses: $25.5 million in federal savings for Wisconsin businesses
In general, net operating losses may be used to offset taxable income in the two prior tax years or carried forward for up to twenty years. For tax year 2008, the provision extends the carry-back period to five years for businesses with gross receipts of $15 million or less.
This provision does not affect a taxpayer's Wisconsin income tax liability.
Deferral of Certain Income from Cancellation of Debt: $298 million in federal tax savings for Wisconsin businesses
A taxpayer generally has to recognize income whenever the taxpayer is able to cancel debt or repurchase the debt for an amount less than the adjusted issue price. The income recognized is the difference between the adjusted issue price and the re-purchase price. For tax years 2009 and 2010, certain businesses will be allowed to defer paying tax on income from the cancellation of debt for four or five years, and then pay the tax evenly over five years.
This provision does not affect a taxpayer's Wisconsin income tax liability.
Capital Gain Exclusion for Small Business Stock:
Federal law provides an exclusion of 50% for capital gains of certain small business stock held at least five years. The provision increases the exclusion from 50% to 75% for gains of certain small business stock. The tax benefit of this provision will occur mainly in fiscal years 2014 through 2016; the total tax relief for these three years is estimated to be $12.2 million.
This provision does not affect a taxpayer's Wisconsin income tax liability since Wisconsin currently excludes 100% of capital gains of certain small business stock held for at least five years.
Reduce the Built-In Gains Holding Period for S-Corporations: $1.8 million in federal tax savings.
In general, if an S-corporation realizes a gain of its assets sold during the first 10 taxable years the S-election is in effect and those gains arose prior to the conversion from C-corporation to an S-corporation, the S-corporation is subject to a built-in gains tax equal to the highest marginal corporate tax rate. The provision reduces the recognition period from 10 year to seven years for assets sold in 2009 and 2010. Thus, if an asset is sold in tax year 2009 and 2010 and it has been seven years after the S-corporation election, no tax is imposed on the built-in gain.
Last updated March 16, 2009