American Recovery and Reinvestment Act — Sufficient Stimulus?

“There’s a lot more spending in the stimulus than there were tax incentives,” she notes. “However, the tax incentives that were included feature some good provisions for business. We’re always supportive of these types of tax incentives to help jump-start the manufacturing economy.”

Stuart Margolis, a principal of the firm MargolisBecker and a CPA serving the printing industry, is a big fan of the bonus depreciation element of the package. It’s a tact that has worked well in the past, he notes, but maybe not so much in this tough economic climate.

“The problem I see is that, in 2009, a lot of companies aren’t going to be paying taxes anyway because they’re not making money,” he says. “So, if they buy a piece of equipment, it’s not going to reduce their taxes because there’s no taxes being paid by the corporation; there’s no planned profit. Hence, there’s no benefit to using the tax provision.”

Among some of the other ARRA provisions: the Work Opportunity Tax Credit (WOTC) rewards employers that hire individuals from target groups, such as disabled veterans. This applies to individuals who are hired and begin work in 2009 and 2010.

Another feature is the delayed recognition of certain cancellation of debt income. Previously, a taxpayer generally has income where the taxpayer cancels or repurchases its debt for an amount less than its adjusted issue price. The amount of cancellation of debt income (or CODI) is the excess of the old debt’s adjusted issue price over the repurchase price. Some businesses will be permitted to recognize CODI over 10 years—defer tax on it for the first four to five years, and recognize this income ratably over the following five taxable years—for specified types of business debt repurchased by the business after December 31, 2008, and prior to January 1, 2011.

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