Southfield-based Plante & Moran PLLC said Monday that a little-known part of a federal law called the Worker, Homeownership, and Business Assistance Act of 2009 may be overlooked, costing business owners thousands of dollars in taxes they don’t legally need to pay if their companies lost money in 2008 or 2009.
The provision is being overlooked in part because it’s not included in some tax preparation software, the accounting and business advisory firm said.
When the legislation was signed by President Obama on Nov. 6, 2009, a White House press release said the law “creates jobs by cutting taxes for struggling businesses … and provides an expanded tax cut to tens of thousands of struggling businesses, providing them with the immediate cash they need to pursue an expansion or avoid contracting or furloughing their workers.”
According to Plante & Moran tax partner Mike Monaghan, the IRS code already had provisions to allow small businesses who had a loss in 2008 to use that loss to offset income from the previous five years under the American Recovery and Reinvestment Tax Act of 2009, better known as the federal stimulus. The WHBA not only expanded the five year loss carryback provision to businesses of all sizes, but to 2009 losses as well.
As an added bonus, the WHBA also removed the usual limitation applied to Alternative Minimum Tax losses by allowing these losses tooffset 100 percent of AMT income.
What many business owners may not realize is the removal of the AMT limitation also applies to future years if they still have some of the net operating loss left over from the ARRA or the WHBA carryback rules, says Monaghan.
“The ‘bonus’ effectively reduces taxes by 2 percent of the current year income when the net operating loss is used,” Monaghan said.
For example, he said, a business with $2 million of income in 2010 that has at least $2 million of net operating losses carrying forward for which the ARRA or WHBA election was made will receive a $40,000 tax benefit.
Monaghan says taking advantage of this rule is automatic if a taxpayer meets the requirements, but it is easy to miss not only because it has not been publicized as much as other tax incentives but because certain tax software have not been programmed to properly consider the rule.
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