David Kirkpatrick

December 7, 2009

The bank bailout may end up in the black

Who’d a thunk this a year ago?

From the link:

The Treasury Department expects to recover all but $42 billion of the $370 billion it has lent to ailing companies since the financial crisis began last year, with the portion lent to banks actually showing a slight profit, according to a new Treasury report.

The new assessment of the $700 billion bailout program, provided by two Treasury officials on Sunday ahead of a report to Congress on Monday, is vastly improved from the Obama administration’s estimates last summer of $341 billion in potential losses from the Troubled Asset Relief Program. That figure anticipated more financial troubles requiring intervention.

The officials said the government could ultimately lose $100 billion more from the bailout program in new loans to banks, aid to troubled homeowners and credit to small businesses.

Still, the new estimates would lower the administration’s deficit forecast for this fiscal year, which began in October, to about $1.3 trillion, from $1.5 trillion.

November 27, 2009

That SBA stimulus cash loan program? Gone

Well, more correctly out of money.

From the link:

The stimulus cash that helped boost small business lending this year just ran out.

The Small Business Administration said Monday that it has run through all of the $375 million Congress allocated to temporarily waive fees and boost guarantees on loans backed by the SBA’s lending programs. Businesses still hoping for a slice of the pie can get in line, cross their fingers and wait.

November 18, 2009

The stimulus package and science

Scientific research wasn’t left out of this year’s stimulus plan to the tune of $21 billion, and a federal website tracks all that stimulus.

From the link:

The stimulus plan passed by the US Congress earlier this year provided $21 billion for scientific R&D to be allocated through the National Institutes of Health, the Department of Energy, and other agencies. (The full text of the bill is available in this large pdf file.) The debate still rages amongst politicians and economists about just how many jobs the $787 billion bill has created. In the meantime, the government has launched an interesting website detailing where that scientific R&D money went.

Call it propaganda–the site is called ScienceWorksForUS–but it’s interesting to browse through the detailed list and see which research projects were funded and for how much.

October 29, 2009

Stimulus money going to the power grid

Almost three and half billion dollars of stimulus money in fact. This ARRA cash will be stretched by a requirement for matching private investment.

From the link:

President Obama on Tuesday announced a $3.4 billion federal investment to modernize the country’s outdated power grid.

The money will go to 100 projects in 49 states to add automated substations, digital transformers, electric meters in homes and other high-tech equipment to create a “smart” grid.

“We’re going to create an energy superhighway,” Mr. Obama said when making the announcement at Florida Power & Light Co.’s DeSoto Next Generation Solar Energy Center in Arcadia, Fla., one of the country’s biggest solar-power facilities.

October 21, 2009

A stimulus by any other name …

Filed under: Business, Politics — Tags: , , , — David Kirkpatrick @ 3:16 pm

… still spends public money.

All jokes and complaints aside, Obama does have an impressive economic team in place working hard to solve a massive and ongoing problem. I may not like the way things are going, but I will defer to experts implementing their plan.

From the link:

You won’t see it all in one neat package. And you won’t hear the White House call it stimulus.

But there’s a good chance lawmakers will decide to extend some of the stimulus measures included in the $787 billion economic recovery package passed in February and possibly create some new ones as well.

On Wednesday, House Democrats are convening a forum of economists to debate the state of the economy, with a specific focus on job creation. And lawmakers are convening hearings on Capitol Hill this week to discuss the economic outlook and the state of the housing market.

A number of ideas on the table are lifeline measures, while some are flat-out incentives to spur economic activity.

June 16, 2009

The stimulus plan, COBRA and business

I’ve done recent blogging on COBRA and the stimulus plan, but the topic is still fairly confusing in terms of how the unemployed obtain the subsidy and how this program ties into existing ex-employer based COBRA health insurance.

The link in this graf doesn’t make things perfectly clear, but it does offer some interesting ideas on the corporate side in maximizing benefits for both the company and the recently laid-off worker.

From the link:

However, to the extent that an employer subsidizes all or a portion of COBRA benefits following a set of employee layoffs, the employer subsidy period also reduces the length of the federal subsidy period.

For example, assume an employer subsidizes COBRA coverage for three months following a layoff.

Under this scenario, the employee would only be eligible for six months of the federal COBRA subsidy rather than the full time allotted.

For the above reasons, I recommend that employers provide employees with additional severance benefits and eliminate their corporate subsidy for COBRA coverage.

This saves corporate resources, and employees may take maximum advantage of the federal COBRA subsidy.

As an alternative to eliminating their corporate COBRA subsidy, employers may elect to measure COBRA from the “loss of coverage” rather than the actual qualifying event.

May 21, 2009

IRS announces tax breaks for small business

Another bone for Main Street from the IRS.

The release:

Law Offers Special Tax Breaks for Small Business; Act Now and Save, IRS Says

 
IR-2009-51, May 20, 2009

Small Business Week is May 17 to 23, and the Internal Revenue Service urges small businesses to act now and take advantage of tax-saving opportunities included in the recovery law.

The American Recovery and Reinvestment Act (ARRA), enacted in February, created, extended or expanded a variety of business tax deductions and credits. Because some of these changes—the bonus depreciation and increased section 179 deduction, for example—are only available this year, eligible businesses only have a few months to take action and save on their taxes. Here is a quick rundown of some of the key provisions.

Faster Write-Offs for Certain Capital Expenditures

Many small businesses that invest in new property and equipment will be able to write off most or all of these purchases on their 2009 returns. The new law extends through 2009 the special 50 percent depreciation allowance, also known as bonus depreciation, and increased limits on the section 179 deduction, named for the relevant section of the Internal Revenue Code. Normally, businesses recover these capital investments through annual depreciation deductions spread over several years. Both of these provisions encourage these investments by enabling businesses to write them off more quickly.

The bonus depreciation provision generally enables businesses to deduct half the cost of qualifying property in the year it is placed in service.

The section 179 deduction enables small businesses to deduct up to $250,000 of the cost of machinery, equipment, vehicles, furniture and other qualifying property placed in service during 2009. Without the new law, the limit would have dropped to $133,000. The existing $25,000 limit still applies to sport utility vehicles. A special phase-out provision effectively targets the section 179 deduction to small businesses and generally eliminates it for most larger businesses.

Bonus depreciation and the section 179 deduction are claimed on Form 4562. Further details are in the instructions for this form.

Expanded Net Operating Loss Carryback

Many small businesses that had expenses exceeding their incomes for 2008 can choose to carry those losses back for up to five years, instead of the usual two. For small businesses that were profitable in the past but lost money in 2008, this could mean a special tax refund. The option is available for a small business that has no more than an average of $15 million in gross receipts over a three-year period.

This option is still available for most eligible taxpayers, but only for a limited time. A corporation that operates on a calendar-year basis, for example, must file a claim by Sept. 15, 2009. For eligible individuals, the deadline is Oct. 15, 2009.

Eligible individuals should file a claim using Form 1045, and corporations should use Form 1139. Details can be found in the instructions for each of these forms, and answers to frequently-asked questions are posted on IRS.gov.

Exclusion of Gain on the Sale of Certain Small Business Stock

The new law provides an extra incentive for individuals who invest in small businesses. Investors in qualified small business stock can exclude 75 percent of the gain upon sale of the stock. This increased exclusion applies only if the qualified small business stock is acquired after Feb. 17, 2009 and before Jan. 1, 2011, and held for more than five years. For previously-acquired stock, the exclusion rate remains at 50 percent in most cases.

Estimated Tax Requirement Modified

Many individual small business taxpayers may be able to defer, until the end of the year, paying a larger part of their 2009 tax obligations. For 2009, eligible individuals can make quarterly estimated tax payments equal to 90 percent of their 2009 tax or 90 percent of their 2008 tax, whichever is less. Individuals qualify if they received more than half of their gross income from their small businesses in 2008 and meet other requirements. For details, see Publication 505.

COBRA Credit

Employers that provide the 65 percent COBRA premium subsidy under ARRA to eligible former employees claim credit for this subsidy on their quarterly or annual employment tax returns. To help avoid imposing an unnecessary cash-flow burden, affected employers can reduce their employment tax deposits by the amount of the credit. For details, see Form 941. Answers to frequently-asked questions are posted on IRS.gov.

Other ARRA business provisions relate to discharges of certain business indebtedness, the holding period for S corporation built-in gains and acceleration of certain business credits for corporations. Also see Fact Sheet FS-2009-11.

April 16, 2009

COBRA backgrounder

Here’s a good, easy to follow backgrounder on COBRA. I’ve recently blogged on this topic based on an article I wrote for WeCompareInsurance.com.

From the first link:

The American Recovery and Reinvestment Act, commonly known as the stimulus package, created a significant amount of work for employee benefits professionals with its recent COBRA changes. ARRA creates a federal 65% subsidy for COBRA insurance for individuals who involuntarily lost or will lose their jobs between Sept. 1, 2008 and Dec. 31, 2009.

For example, if the monthly cost of COBRA coverage is $1,000, and employees are responsible for the full premium, under the subsidy, the employee will only be required to pay $350 each month for COBRA coverage, with a federal subsidy of $650.

How it works

The mechanics of the subsidy are interesting. Employers will receive a credit on their payroll tax returns for the federal subsidy. For example, if the federal subsidy is $650, and employee pays $350 for COBRA coverage, the employer will receive a credit of $650 on its federal withholding tax returns (i.e., Form 941).

For employers with more than 20 employees, these procedures will apply whether a plan is fully insured or self-insured. However, workers at small firms, who are not normally eligible for COBRA coverage, still will be entitled to the federal subsidy if state-mandated coverage is comparable to COBRA. However, in these circumstances, the insurance carrier, and not the employer, will be the entity responsible for providing the subsidy and taking the payroll tax credit.

The COBRA subsidy only lasts for a maximum of nine months. When COBRA rights are cut off, the subsidy ends. For example, if an employee receives new employment with a one-month waiting period, when the employee becomes eligible for new coverage, the COBRA subsidy ends. It is the responsibility of employees to notify employers when new coverage exists.

If an employer denies the employee the federal subsidy, there is an appeals procedure with the Department of Labor and the Department of Health and Human Services. It is likely that disputes will exist with regard to employees who fail to return to employment following a period of FMLA leave or other leave of absence and consider themselves to be terminated. In many of these situations, the employer will consider the employee to have voluntarily abandoned their position when they fail to return to work following the expiration of an approved leave of absence. Clarification regarding the definition of involuntary termination is expected.

February 17, 2009

Taxpayers and the stimulus package

A press release from H&R Block:

Stimulus 2009: Something for Nearly Everyone
Marketwire via NewsEdge :

KANSAS CITY, MO, February 16 / MARKET WIRE/ —

Millions of taxpayers will take home more money from the almost $790 billion American Recovery and Reinvestment Act expected to be signed into law early this week, but most provisions won’t happen automatically.

“The Recovery Act gives taxpayers money to spend, incentives to spend it and choices to spend it on,” said Amy McAnarney, executive director of The Tax Institute at H&R Block (NYSE: HRB). “There are provisions that pay you now and some that pay you later. But for most individuals, this isn’t a check-is-in-the-mail stimulus. Taxpayers will need to have guidance to maximize the benefit.”

H&R Block notes five key areas that impact individual taxpayers today and in the future:

 

--  Putting money in taxpayers' pockets now
--  Helping more of those who have less
--  Making homeownership more affordable
--  Increasing access to higher education
--  Getting green from the garage

 

Review chart with the breakdown of taxpayer benefits.

“Taxpayers want to know how this Recovery Act affects them so they can get all the credits and deductions they’re due,” McAnarney said. “The Tax Institute recommends consulting with a trusted tax professional to help decipher the complex changes and what they mean to each individual.”

Review complete Recovery Act FAQ.

Putting money in taxpayers’ pockets now

The bill includes several provisions that immediately boost the wallets of workers, non-workers, the unemployed and retirees. For both 2009 and 2010, the Making Work Pay tax cut means up to $400 for individuals and $800 for couples through a reduction in income tax withholding; in other words, bigger paychecks. Eligible workers may need to work with their employers to ensure any adjusted income tax withholding is appropriate for their situation. For example, if all working taxpayers are automatically transferred to the new reduced withholding amounts, certain taxpayers may actually owe more taxes when they file their 2009 and 2010 returns.

“Knowing your tax situation is extremely important in instances like this,” said McAnarney. “How and when this credit is actually going to be administered is still unclear.”

Eligible self-employed taxpayers can adjust their quarterly estimated payments. For those taxpayers who do not receive the full amount this year, they will receive the remaining as a credit on next year’s tax return.

Social Security and SSI recipients, retired and disabled veterans, and railroad retirees will get a one-time payment of $250. The Social Security Administration and Veterans Administration will provide the information about who qualifies for this payment, so eligible individuals won’t have to do anything. Individuals on a federal or state retirement program who don’t receive Social Security benefits can claim a $250 credit when they file their 2009 tax returns.

“However, there’s no double-dipping,” said McAnarney. “Taxpayers who qualify for both the Making Work Pay Credit and the $250 payment can’t get the full amount of both benefits.” In these cases, the Making Work Pay Credit will be reduced by $250.

The Act has several benefits for the unemployed. Many will receive a $25 weekly boost to their unemployment check. In addition, the first $2,400 in benefits will be exempt from federal tax in 2009. Eligible unemployed workers paying for COBRA will benefit from a 65 percent federal subsidy for their monthly insurance premiums.

Helping more of those who have less

The Recovery Act expands the Child Tax Credit, allowing families to begin qualifying for the credit with every dollar earned over $3,000. For taxpayers, this change translates into a refundable credit of up to $1,000 for each qualifying child under 17. Refundable credits give taxpayers a real boost because if the person has no tax liability, the credit is issued in the form of a refund.

This is the second year in a row the income threshold has been lowered. For 2008, it was lowered to $8,500 from $11,750.

The Act also increases the Earned Income Credit for families with three or more children, where previously EIC benefits were capped at two children. The Act would also increase the beginning point of the phaseout range for all married couples filing a joint return. That’s good news for married couples regardless of the number of children they have.

Making homeownership more affordable

Taxpayers on the fence about buying their first home may want to consider the Act’s $8,000 tax credit.

Unlike the incentive passed last year, first-time homebuyers will not have to repay the credit as long as they live in the house for three years. To qualify, eligible homebuyers must make their purchase between Jan. 1, 2009, through Nov. 30, 2009. Taxpayers who have purchased a home this year can take advantage of this credit on their 2008 return. For those who have already filed, filing an amendment is the best way to capture this full credit on their 2008 tax return.

The plan also includes tax credits for energy-efficient improvements such as qualified new furnaces, windows and doors to existing homes. The credit applies to 2009 and 2010 tax returns, with a lifetime cap of $1,500.

Increasing access to higher education

More taxpayers will be able to qualify for the American Opportunity Tax Credit, which will provide a new, partly refundable $2,500 tax credit for college tuition in 2009 and 2010. By making the credit partially refundable, nearly 4 million low-income students now will be able to qualify for the credit. This can be a better alternative for taxpayers than the two existing higher education credits.

Also, computer and computer technology costs will now qualify in 2009 and 2010 under the Section 529 Education Plans, which are tax-exempt college saving plans. Previously, eligible expenses included only tuition, room and board, and books, supplies and equipment that were required for attendance at the school.

Getting green from the garage

The package allows taxpayers to deduct the state and local sales and excise taxes paid on the purchase of new cars, light trucks, recreational vehicles and motorcycles. The vehicles must be purchased from the enactment date of the Act through the end of the year.

The Act also provides a tax credit of up to $7,500 for families who purchase plug-in hybrid vehicles purchased after 2009 or plug-in conversion after date of enactment and before 2012. Even those taxpayers who don’t itemize can benefit from this.

H&R Block will provide ongoing information about the Recovery Act on www.digits.hrblock.com.

The Tax Institute, a division of H&R Block, is a national leader in providing unbiased research, analysis and interpretation of federal and state tax laws. Staffed by Enrolled Agents, CPAs, and Attorneys, The Tax Institute provides industry expertise for matters related to taxes and the professional tax preparation industry.

About H&R Block

H&R Block Inc. (NYSE: HRB) is the world’s preeminent tax services provider, having served more than 400 million clients since 1955 and generating annual revenues of $4.1 billion in fiscal year 2008. H&R Block provides income tax return preparation and related services and products via a nationwide network of approximately 13,000 company-owned and franchised offices and through TaxCut® online and software solutions. The company also provides business services through RSM McGladrey. For more information visit our Online Press Center at www.hrblock.com.