What Obama’s Proposed Tax Cuts Mean for Small Businesses

Posted by: Colleen Debaise on January 5, 2009

Here’s a welcome report for entrepreneurs this new year: President-elect Barack Obama’s massive stimulus plan is expected to include three key tax breaks for small-business owners.

Details are still emerging, but the plan could include a longer window for businesses to “carry back” losses; an incentive to invest in machinery, equipment and other capital improvements; and a tax credit for job creation.

How soon can that get money into your hands? Faster than you might imagine. I spoke with Barbara Weltman, a tax attorney in Millwood, N.Y., who says an extension of a carry back period for losses could significantly help businesses that had been profitable in years past, but struggled in 2008.

Here’s how it might work: If you experienced a downtick last year, you can claim a net operating loss or NOL, which is essentially when expenses exceed revenues. Current tax law allows you to use that NOL to offset the past two years’ income, which could win you an immediate cash refund. Under the Obama stimulus plan, that carry back period would be extended, allowing you to use that NOL to reduce the past five years’ tax bills. That’s “a big deal,” she says. “It allows you to get an immediate cash infusion that you can use to help you survive now.”

If you do get a cash refund, another proposed tax break might spur you to plow that money back into your business. The Section 179 (first-year expensing) deduction for purchases of new equipment or machinery is expected to increase to $250,000. Currently, the limit for 2009 is $133,000.

Another piece of the Obama stimulus package could be a one-year tax credit for job creation. The president-elect has pledged to create 3 million new jobs to offset 2008’s steep losses. Republican Congressional leaders have indicated they would support tax relief, although size and scope would need to be worked out. The emergency package could be passed within weeks of Obama’s inauguration.

Reader Comments

Kai

January 6, 2009 1:36 PM

As a small business owner I think that Obama should focus on American small businesses to help get the economy on track. We as business owners may not provide a lot of jobs but we do employ the neighborhood citizens.

Rob

January 6, 2009 2:59 PM

"We as business owners may not provide a lot of jobs but we do employ the neighborhood citizens."

Small business actually happens to account for over 50% (I've heard 57%) of people employed in the U.S. So thanks for helping out the economy, small business owners!

Dan

January 6, 2009 3:47 PM

The best thing the President could do for small business would be to fix health care.

Susan

January 6, 2009 4:11 PM

My family owns two businesses. At this point, there is no need to hire anybody else and so that credit doesn't do us any good. We had a strong 2008 and so I don't need any carry back extension. We invested heavily in machinery during 2008. Now that revenues have dropped by about 30 percent since the beginning of Dec. I am not entertaining the idea of buying any more equipment until the mood of our customers changes. So see we are now back to the customer and lack thereof. I don't believe the consumer will budge one inch with the debt piling on in Washington. I think all those numbers are freaking people out. They feel poor already and the stimulus has even begun.

Scott

January 6, 2009 8:27 PM

Instaed of any kind of stimulus package for American workers ,how bout getting rid of the illegal worker in Americas workplace and lets even the playing field for Good Hard Working Americans such as I and my dedicated American workers whom I will only employ,That stimulus money could build more fence and more border patrol agents.

james Raider

January 6, 2009 9:44 PM

Where is outrage over responsibility for the recession now that facts are clear in the rearview mirror?

http://pacificgatepost.blogspot.com/2009/01/democrat-responsibility-for-economic.html

It was evident then, it is even more evident now. Yet no feet are being held to the fire. Can we assume Madoff arrived just in time to take the brunt of it, deflecting all attention from where it should be focussed?

BizTrader.com

January 7, 2009 8:30 AM

Great Article! I agree, Obama should focus mainly on US small business owners.

Jeff

January 7, 2009 9:13 AM

Why not invest in a public works project to shore up all of the levies in the country. There are about 3,000 of them that are in jeopardy the way the levi in New Orleans was when it broke under Katrina. Need we wait for another disaster before doing something?

Bob

January 7, 2009 11:09 AM

I agree that small business needs tax relief but those numbers are much bigger than most of us will spend in any one year on hardware. Remember we are small. Spending $250K on hard equipment is most unuaual. So the increase is mostly meaningless to us. Why can't we prosecute the crooks and get them to give their illegal-immoral gains back?

Magdela D

January 7, 2009 1:44 PM

"Scott
January 6, 2009 08:27 PM
Instaed of any kind of stimulus package for American workers ,how bout getting rid of the illegal worker in Americas workplace"

Ah but will American workers be willing to work 60+ hour weeks for the same SLAVE WAGES that the illegals are willing to take and with NO HEALTH INSURANCE?

Eric

January 7, 2009 2:29 PM

Why is it that every time there is a slowdown in the US economy, some feel that the solution is to "get rid of the illegal worker?" Do you have any idea what this country would be like if it weren't for immigrant workers - legal or not? I'm not in favor of illegal immigration, but I'm also not in favor of simple ideas that are not solutions to anything.

Glenn

January 7, 2009 3:05 PM

I see nothing wrong with simple solutions. "Give rid of the illegal worker" is a good starting point that will provide more jobs for legal workers. Next on the list - eliminate the programs that permits companies to fire skilled American workser and import skilled, but lower paid, foreign labor.

Al

January 7, 2009 3:46 PM

I've been dollar cost averaging into my IRA since 1985. I've never earned more than 56k in a single year. I have a 13k balance on my home mortgage which I pay 4.875% int. because I refinanced when I thought it was a good deal. In 26 years I built a nest egg of 520k. My credit is excellent and I pay off my credit cards monthly. Never an extension or interest. Now because so many people borrowed more than they could pay back, my IRA is worth 33% less and my home is worth 27%less -all because I did the conservative thing and didn't spend beyond my means. My newest vehicle is 8 years old! Now that
sucks! Why do I and others like me have to pay for those who choose to be irresponsible with money. We need to teach personal finance in high school. I've always fed the PIG!!

Jeff Mead

January 7, 2009 4:18 PM

I have done a fair amount of reseach regarding the "illegal worker". Through this I have come to the personal conclusion that the only way to do this is to target those employers which participate in theses hiring practices. The discussion about this is far, far too long for here, but it amazes me how small businesses can actively hire illegal workers when they must know how damaging it is for the entire economy (and yes, that includes themselves). There seems to be far too much near-sightedness in small business.

Trina

January 7, 2009 4:29 PM

I don't mind migrant workers, and feel strongly that if more ABLE bodied americans would show interest in working some of the jobs they do it wouldn't be a problem. I'm for whatever needs to happen to help increase employment and the overall economy.

Two Dogs

January 7, 2009 6:27 PM

Jeff, about the levees around New Orleans that failed, why not ask Mary Landreui's brother, the contractor that repaired most of those levees PRIOR to the flooding, pay back the money that he received for performing substandard work? Any possibility of a Democrat Senator's brother going o jail over his failures? Ain't gonna happen.

Obama, if he wants to do anything other than increase dependency on government, should CUT SPENDING! Dang, how hard is that to understand?

And as far as the illegal immigrants and unemployment is concerned, abolish the minimum wage, there go the criminal border jumpers and job costs go down, plus business owners shall begin to hire those workers that became unprofitable the minute that the Democrats raised minimum wage in the past two July's. They are going to do it again this July, expect a new round of lay-offs because that always happens when minimum wage is increased. Think, folks.

Bob

January 7, 2009 8:52 PM

Obama doesn't want us to be less dependent on government. It should be clear to all that he believes government is the answer to all our problems. I can just see him waiting for his turn to create the great dream country where everybody gets a piece of the pie and whoops then what to do with the overachievers or gifted people. Well maybe a better house or car. Hmmm sounds like Cuba. Or Russia maybe?

Kevin

January 8, 2009 2:57 PM

Do we think the that plowing the money back into the business by purchasing modernized up-to-date eCommerce platform software would be considered a capital expenditure, and therefore included in the tax break???

Jeff

January 8, 2009 4:43 PM

here's the big flaw that the media seems to be missing. the carryback only applies to "C" corporations and MOST small businesses are "S" corps. they aren't now and wouldn't be allowed any carryback of losses

Sen Snort

January 8, 2009 5:14 PM

Why not bring back income averaging and the deductabilty of credit card interest for everybody like it was in the 80's ? For that matter, for Obama's 800 billion stimulus, why not give the 100 million taxpayers a check for $8000 and let them spend it as they please. Should have the same result without picking winners and losers.

Michael

January 8, 2009 5:34 PM

Obama actually promised to "create or save" 2.5 million jobs...so as long as there are still 2.5 million jobs in the country after this is all over, he can claim he lived up to his promise.

obrianw

January 8, 2009 5:45 PM

As a small business owner of a start-up online marketplace for residential cleaning services ( http://www.bidmycleaning.com ) I welcome all ideas that will help our economy get back on track and put money in my pocket for hiring staff and buying equipment – things I would need to do anyway if the economy picks up.

Jesse

January 8, 2009 9:20 PM

Enough with blaming the immigrants for this countries problems. Grow up people and smell the coffee. If you want to solve this problem, then go after the employer who hires the illegals at less then minimum wage and smiles all the way to the bank. Hell, they get away with not paying into the system the various taxes all us hard working Americans do pay. Give them a significant fine to ensure their compliance and just watch, the immigrant problem will no longer be used as a political scapegoat. However, lets see who cleans your homes and takes care of your children and cooks your restaurant meals and busses your tables, etc. Unlike some arrogant Americans, these immigrants are not shy about the work they do, they just want a job - a job arrogant Americans don't care for. The next time you go to the market to buy your fruits and vegetables, remember that if not for the meager wages they earn for this job, the price you would pay for these products would be significantly higher. The simple truth is that because the immigrant is willing to do the work for less, costs, which are passed on to the consumer, are held down. Please, enough.

CraigR

January 8, 2009 9:34 PM

I'm surprised (well, maybe not) that several commenters are beating the illegal worker drum again. And again. The Social Security Inspector General estimates that 75% of unauthorized workers are "on the books" -- paying into Social Security and Medicare, paying federal and state taxes. And even when they're not on the books, they are consuming...paying sales taxes, living somewhere and paying either real estate taxes or rent that leads to someone else paying those taxes. They tend to be filling niches where frankly, Americans aren't going to go in droves -- like seasonal and farm jobs. I read that three quarters of farmworkers are estimated to lack proper status, for instance. So, if you are running a small business that relies on farmers to purchase your product or service, and the farmers fail, you fail. Quit scapegoating immigrants working at the lower end of the proverbial food chain. That's our nation's history...and present, and future!

Tuviah snyder

January 9, 2009 1:44 AM

Why not give 10000 to the 50million who actually pay taxes. It would be a refund in the form of a voucher which cannot be hoarded. It could be used to help buy a car, save your house, and help the middle class!!

Greek

January 9, 2009 10:12 AM

This article is a joke. With $1.2T in new spending, the dollar will accelerate it's tail spin. Inflation will rule. The tiny crumbs going to tax credits will be meaningless for small businesses!

Colleen DeBaise

January 9, 2009 11:42 AM

This is Colleen DeBaise from BusinessWeek responding to Jeff's comment about net operating losses and C corporations. If you’re not the owner of a C corp. – say, you’ve structured your business as a so-called “pass-through” entity like an S corp., where the profits or losses of the business flow through to your personal tax return -- you can still claim an NOL. Tax expert Barbara Weltman explains: “While the S corp. doesn't have it's own NOL, the owners of S corps claim NOLs with respect to their personal share of business losses on their individual returns, so they would benefit as well from the five-year carryback.”

julia strait

January 9, 2009 3:34 PM

send back all the illegal workers and give the usa citizens their jobs and get this country back on its feet.I own two business and I am a nuturalized citizen and would never cosider hiring an illegal alien a. because its illegal and b.its not cheaper when people like me turn them in.I went the right legal route and paid $, why do people think they help the ecomnomy is beyond comprehension.

dave bowman

January 9, 2009 4:20 PM

where are all these americans who don't
have jobs and want to work? everytime i look for workers the only response i get is from these so called "illegal workers" who are actually willing to give me a days work for a days pay. i am a business owner and pay good wages for hard work maybe the american worker should quit crying for government help and start helping themselves

bizminded

January 9, 2009 9:12 PM

Jeff
January 8, 2009 04:43 PM
here's the big flaw that the media seems to be missing. the carryback only applies to "C" corporations and MOST small businesses are "S" corps. they aren't now and wouldn't be allowed any carryback of losses

Simply solved: change your status to C-corp. May not be able to take advantage now, but perhaps in the future.

MDH

January 9, 2009 9:34 PM

For my business, relief on the payroll taxes I pay to the local, state, and federal governments would have an instant impact on my bottom line. As sales have suffered, I've dramatically cut back my employees' hours, but I still pay nearly the same amount of money in taxes that I do when they are working their regular schedules. The only way to decrease my tax burden is to decrease headcount, and unfortunately, I am already as lean as I can possibly be without compromising service and/or quality. Payroll taxes are one of those expenses where you can't negotiate or "hustle" because the government is coming to get the money no matter what's happening in your businesses.

I would like to see the Obama Administration work on more ideas that directly put money in small business owners' pockets right now. A payroll tax holiday would do just that.

Tom

January 10, 2009 9:52 AM

I have got to agree with Al, we also were conservative, not going into debt we could not payoff early. Portfolio is down 17%, home value down roughly 25%, prospects for improvement shaky at best.

I have a small business, and Obama's ideas would not help. Help small business and the USA auto manufacturers. Set up rapid depreciation, and incentives for buying cars manufactured in the USA, not imported cars, vans and trucks.

Tom

January 10, 2009 11:52 AM

My wife and I own two businesses, I agree somewhat with Susan's post in that we also had a slight profit last year (and subsequent years), expect no break tax-wise, but now are seeing less and less consumers. Without some alterations to a stimulous package (for both small business and consumers), we will not be employing any additional workes as we are taxed and regulated to death. To give you a rough idea...business #1 took in a gross of $700,000. I personally did not clear enough to pay myself a $40,000 annual salary as owner/manager of the business. This was not mismanagement as we are very frugal, but simply a case of "everyone is feeding off of my pie, but me!". Taxes (local, city, state, federal) as well as all the license fees, etc. bleed the business badly! Where is the break to incent me as the business owner to do anything other than try and struggle to survive?? I do not see any help from Obama, the Federal Government, local governments, etc. Just a lot of empty rhetoric. Best of luck to all in 2009 and beyond!

Barber

January 10, 2009 6:42 PM

These tax breaks don't begin to help TRUE small business owner like myself. I don't have a need to employ anyone. I will never upgrade equipment enough to recieve a tax credit. I think what Obama really means by small business is small corporation. It appears to me the rich get richer and the poor get poorer. Oh my, isn't he a Democrat? People tell me everyday that happens only with Republicans in office. If Obama wants to really help the working man, as he says, then help the real working people of this country. He can start by lightening my tax load a little bit!

the rest

January 10, 2009 7:32 PM

what the hell about immigrants? Isn't the great USA all about immigration? Or have you descended from the icy Antarctica or rose from the vast lands of Latin-America? No. You immigrated. Or maybe you guys just materialised there. I am quite sure that if any illegal immigrant could work legally, they would choose to do so. Those who comment on this issue are right in one thing, maybe the government should review its immigration policy and adjust it to its economical needs.

Withheld

January 10, 2009 8:21 PM

Why comment on hard working illegals when union wages are killing industry? GM, Ford paying $72/hr vs. Toyota's $43 is a big-industry picture, but small business get hit, too - theater unions drive ticket costs up, convention workers make exhibits prohibitive (ever pay $150 to a guy for plugging in an appliance? Insanity!, construction unions turn sites into an us-vs.-them warzone.
Want 'hard working' Americans to thrive? Stop babying slack workers and start rewarding the smart, capable guys in every field who are worth every penny.

Shannon J.

January 11, 2009 2:37 AM

We need to create jobs that actually create something. It seems that the last decade or so all the 'job creation' is hedge funds and so forth that are just making percentages off of industries that already exist. We need to put people to work.

Al Conti

January 11, 2009 5:04 PM


As a small marina owner,my biggest problem is regulations by gov (local, state, and federal)agencies. Degrees of compliance should be assigned to small businesses according to their size not just a set of regulations for all. This can apply to fire codes, EPA storm water regs,and other areas.

DAVID

January 12, 2009 12:40 AM

WHAT GO'S UP MUST COME DOWN..WHERE ALREADY IN DEPRESSION,WE ARE JUST TOO AFRAID TO ADMIT IT.I OWN A SMALL BUSS.
IF I COULD FIND A ILLEGAL WORKER I WOULD TAKE THEM. BECAUSE I KNOW SOME WORK WOULD GET DONE,IT'S NOT ABOUT THE MONEY THINGS GOT TO GET DONE. SOME AMERICAN ARE JUST LAZY.."DISABILTY" NEEDS TO BE INCHECK..TO MANY PEOPLE TAKE ADVANTAGE OF IT..WHERE DOES THAT MONEY COMING FROM..TAXES ARE TAXES.
AS AMERICANS LETS RISE TO THE TOP...
WORK TOGETHER.THANKS

Mike

January 12, 2009 10:26 AM

Why should nthe governmenty just try to assist businesses that are not doing very well?

As the last American based and operated company in oour industry we believe that the best thing that they could do is to simply allow small businesses the opportunity to make money without government keeping their hand in our pockets and literally handcuffing us with their unnecessary regulations, taxes and bureacracy.

This multi-faceted financial, housing, automotive mess was created by the government having unqualified and special interest influenced people in powerful positions such as Chris Dodd, Barney Frank and the wonderful SEC chairman. It amazes me that there is essentially no accountability in Government as there is in the free market. These people are able to profit while making ridiculous mistakes.

The free markets work fine in every case, every country and every industry when left alone....

Jeff H

January 12, 2009 8:36 PM

as a small business owner, this plan sounds great. But, it's basically a bailout to help struggling businesses keep the lights on, or allow business owners to take a nice payday. We don't hire people simply because we get a cash infusion. We hire people because customers are buying our stuff. Havign teh cash to do it becomes an enabler after that.

hope

January 13, 2009 10:08 AM

Why are you pointing the finger at the illegal immigrants....it's not their fault the economy is the way it is. Fine, get rid of them, I don't think that any american is willing to work min. wage, and long hours the way they do. They would rather be jobless and collect welfare. If in fact the americans were willing to work seasonal jobs and received better wages then the illegal immigrants...don't complain when produce has gotten more expensive for us. It's a chain reaction don't forget that. Why don't we point the finger at big companies that are out sourcing taking work from the american people....ahh, but by doing that their services are more economic for us....they pay lower wages and pay less tax and they get tax cuts from said country for providing work their. Lets tax them if they want to take jobs from the americans and give it to other countries. Like I said it's a chain reaction.

Prof. Samuel D. Bornstein

January 13, 2009 11:51 AM

President-Elect Obama and Rep. Barney Frank will assign Billions of TARP funds for Foreclosure Relief. I would like to alert Rep. Frank that Congress should focus on a group who is especially vulnerable to Foreclosure and whose failure will result not only in loss of home, but also result in millions of lost jobs. I am referring to the millions of Self-Employed Small Business owners who are at-risk of default, foreclosure, and business failure.

A recent national survey determined the extent of involvement of this segment of the small business community in the risky “Toxic” mortgages that are expected to “reset” in 2009, thereby resulting in the 2nd “Tsunami” Wave of Foreclosures that will dwarf the Subprime Mortgage Crisis.

On December 14, 2008, CBS’s “60 Minutes” had a segment on the 2nd Wave of Foreclosures. CBS indicated that experts were expecting another wave of mortgage defaults on ALT-A and Option ARMs mortgages which will dwarf the Subprime Mortgage Crisis. CBS MISSED A VERY IMPORTANT FACT!

Many fail to realize that there are millions of self-employed smaller businesses that are holding these “toxic” mortgages that are going to reset in 2009 through 2012. These borrowers are Prime and Near-Prime borrowers who hold ALT-A, Option ARMs, Interest-Only mortgages. There are $1 Trillion ALT-As, and $500-600 Billion Option ARMs.

So, here we have a major problem. Not only will these small business owners lose their homes, but there will be the resulting JOB LOSSES on their business failure. Although President-Elect Obama is stressing the need to create 3 million new jobs, we must understand that JOB RETENTION IS AS IMPORTANT AS JOB CREATION.

I authored a survey which was conducted by the National Association for the Self-Employed (NASE) to its national membership. The NASE survey is at

http://advocacy.nase.org/research.asp

See the NASE News for the Survey on Toxic Mortgages. Please read my Commentary.

According to this survey, it is estimated that 3,709,800 small business owners hold Alt-A and other “toxic” mortgages. Of this number, 3 million are “very worried” about their ability to make the monthly payment due at “reset” , and 1,279,800 are already delinquent as they have missed one to three or more monthly mortgage payments at mid-November, before the expected Resets that are scheduled to begin in 4th Quarter 2008 through 2012.

The solution lies in the hands of Congress as they meet in January to structure an Economic Stimulus package. Congress should take note of this survey and be “proactive” in addressing the situation, rather than “reactive” as the case has been in the Subprime Mortgage Crisis.

It is a tragedy when an individual borrower defaults on the mortgage and loses his/her home. The tragedy is magnified when the borrower is a small business owner, employing from 1 to 10 employees. The loss of jobs related to mortgage defaults and the resulting business failures will further weaken our economy and prolong the recession.

We can’t afford another shock to our economic system at this time. This 2nd Wave of Foreclosures which will be caused by the ALT-A and Option ARMs will not only result in Foreclosures, but also Job Loss.

I would appreciate if you would bring this info to light in Washington.

Thank you,

Samuel D. Bornstein
Professor of Accounting & Taxation
Kean University, School of Business, Union, NJ
Tel: (732) 493 - 4799
Email: bornsteinsong@aol.com

Bonnie Ruffin

January 22, 2009 8:48 PM

The downtick started over a year ago for my small business. Three jobs were cut, closed my office, and took my small business home in order to survive. Didn't the recession start over a year ago? We incurred our huge loss in 2007. That's when restructuring took place. Now, we need to grow, but can't afford to. 2008, we had a profit. We need tax relief from 2007 so we can refocus for 2009.

zach

January 23, 2009 3:17 AM

Michael
January 8, 2009 05:34 PM
Obama actually promised to "create or save" 2.5 million jobs...so as long as there are still 2.5 million jobs in the country after this is all over, he can claim he lived up to his promise


you must be his wife cause 2.5 million jobs is never going to be good enoung to get the country back on its feet plus the tax plan is never going to work it failed in 2002 and 2008 and the avg dollor amount we will get back is $20.88 a check how would this help us

Jim Lacks

May 17, 2009 1:20 PM

Hello
My name is Jim and my wife Carolyn and I own a furniture business in which we lease the 30,000 sq. ft. building. CVS the pharmaceutical store has purchased the land from our landlord and my remaining 7 yr. lease. We agreed to a figure of $750,000 because that is what is would take for us to rent or build a comparable building. We decided to build a strip mall with the furniture store on one end and 4 rental spots on the other. Because of the rental spots, we would not be in such a financial bind with the mortgage and because we are reinvesting the entire amount of the lease buy out money into the new building, we could lower the rent for the tenants which would help the economy with new business and more jobs. We did not realize until later that the government would take almost 50% right off the top. This isn't money that we were going to stick in our pockets. We are not a big corporation and asking for money that is not ours. We are using this money as we would have our rent money had we decided not to sell out our lease. We are also helping other businesses as well. If we do have to give 50% up front our mortgage will be crazy high and so will our rental fees. Can someone help us?

Desperate for help
Jim and Carolyn

Jim Nitz

January 29, 2010 3:40 PM

Does anyone know what the qualifications for a "small business are?"

Elvenrunelord

February 2, 2010 11:27 PM

To all of you who are crying about the value of your home and portfolios decreasing.....

Those values were artificially inflated and even now do not represent real value.

Those of you who still look at your home as an investment rather than a place to hang your hat deserve the perceived pain your getting.

Illegal immigrants are a problem, but unfair competition from foreign suppliers is a larger concern.

I'm not interested in my quality of life decreasing so multi-national fat cats can make even more money than they already do.

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About

What's it like to run your own company today? Entrepreneurs face multiple hurdles new and old, from raising capital and managing employees to keeping up with technology and competing in a global marketplace. In this blog, the Small Business channel's John Tozzi and Nick Leiber discuss the news, trends, and ideas that matter to small business owners. Follow them on Twitter @newentrepreneur.

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