How The Stimulus Bill Will Affect Smaller Businesses
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Every day there is more news about the stimulus bill. And now that it's been argued back and forth and is likely to be voted in, what's left for smaller companies? Because business groups had been complaining that a lot of business-aimed breaks were scaled back or cut completely.
But at least small businesses that are in the red will get tax refunds, businesses that buy equipment, such as a computer, will be able to speed up its depreciation through the end of the year, and companies restructuring their debt will be able to delay tax payments on the transaction for five years and then spread the payments over another five years.
bMighty talked to Chas Roy-Chowdhury, who is head of taxation for the Association of Chartered Certified Accountants about tax issues affecting smaller businesses in light of the economic stimulus bill. The ACCA is the global body for professional accountants, which serves 122,000 members and 325,000 students in 170 countries worldwide and is headquartered in London.
bMighty: What's the status of the stimulus package?
Chas Roy-Chowdhury: There is clearly some horse trading going on. The president is trying to get it done ASAP or yesterday. There is a lot of goodwill, but as for a time frame, I suspect it will be a couple of weeks before the I's and T's are crossed. President Obama is trying to find consensus among the parties.
bMighty: What does the stimulus package have for small and midsize companies?
Chas Roy-Chowdhury: Smaller companies really need cash -- the sooner the better. With the stimulus package, they'll have enhanced help with health care. There are measures to help small and midsize businesses buy cars with tax deductibles, and there are sales tax deductions for that too.
The way that write-downs work currently is you can get a 50 percent write-down on capital expenditures. You can take the write-down for tax purposes. And there's a 100 percent write-down. The stimulus package will extend these write-downs.
All that is to be welcomed in the current climate.
bMighty: What size companies do those parts of the stimulus package affect?
Chas Roy-Chowdhury: The tax cuts mentioned are not specific to small and midsize companies, but the tax cuts will benefit them more.
bMighty: If the stimulus package is voted in, when can companies expect to see any benefits?
Chas Roy-Chowdhury: I think this will all go into effect this year.
bMighty: Are there any downsides to taking advantage of the stimulus package?
Chas Roy-Chowdhury: The main problem is if they can take advantage of the stimulus bill. Small and midsize businesses are going to need to be propped up. They're going to have a problem with lending institutions being able to lend again. It's not just the big boys in New York and Detroit who need bailing out. Where are smaller businesses going to get the cash or line of credit to buy things like these cars that they can get tax breaks on?
The smaller companies end up not winning at all from the package. I'm not entirely sure in what way these benefits could fit into the stimulus package, but my ideas for the bill would be sales tax holidays, payroll holidays, and extending better lines of credit.
What we've seen in the U.K. is that our equivalent of the IRS acts like a bank. They allow businesses to reschedule their tax obligations and give them a lighter touch. We also have rates of interest and income tax and corporate tax that are lower. The government could do that here, too.
It's a bizarre system where a bill goes to House and another goes to the Senate, whereas in the U.K., it goes through the House of Commons and then the House of Lords. In the U.S., it's a system that lends itself to a lot of confrontation. It seems a bit clear as to what the bill will look like.
At the end of the day, if there is going to be sufficient cash injection, a lot of the measures are going to be "spend to save," and a lot of smaller businesses aren't in the position to spend at all. They need a handout rather than a hand-up.
bMighty: What are your hopes for the stimulus bill?
Chas Roy-Chowdhury: I think the five-year loss will be in there, and that will be a big help for smaller businesses. There's also going to be a small package of measures that will help small and midsize businesses, like construction projects for rebuilding the Santa Monica Pier. A lot of expenditure will help get people back to work.
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Jennifer Moline is associate editor of bMighty.com.