Senate stimulus looks better for businesses

Senate version of House bill adds tax writeoffs for recent operating losses.

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Senate Finance Committee chair Max Baucus's stimulus bill is being fast-tracked through the Senate.
Can the stimulus save us?
Harvard Economist, Martin Feldstein, talks about the good, the bad and the ugly in the debate over how to kickstart the economy.

(FORTUNE Small Business) -- The Senate version of an economic stimulus bill, which could come to a vote this week, contains several tax provisions intended to benefit small businesses, including some not present in the House bill passed on Tuesday.

First and foremost, the Senate bill, proposed by Senate Finance Committee chair Max Baucus (D-Mont.), would extend a helping hand to businesses facing large operating losses in either the 2006 or 2007 tax year, allowing them to write off those losses against gains as far as five years back, rather than the current two-year limit.

"Any business with a loss in this tax year would certainly benefit from that," says Bill Rys, tax counsel for the National Federation of Independent Business (NFIB), adding that businesses that had seen losses in 2005 as well would especially gain from being able to carry back losses against earlier profitable years.

The Baucus proposal would also allow accelerated depreciation of certain items, with an extra 25% allowed to be depreciated in each of the first two years after an item's purchase. Assets eligible for bonus depreciation include tangible property being depreciated over less than 20 years, computer software, water utility property, and improvements to leased property. All could be depreciated even under the alternative minimum tax.

As in the House version, the Senate bill would also loosen limits on writing off taxes for new investments under Section 179 of the tax code.

Under current law, businesses earning up to $500,000 in annual revenue are allowed to deduct investments of up to $125,000, instead of depreciating them; both the House and Senate bills would allow businesses with up to $800,000 in annual revenue to deduct as much as $250,000 in Section 179 investments, which can include any tangible business purchases other than buildings. (Computer software is specifically cited as a qualifying purchase.)

Each business could apply for only one of the three special tax provisions, so that an entrepreneur taking advantage of the five-year writeoff, say, would not be eligible for bonus depreciation as well.

Taken together, the three provisions are estimated to provide more than $31 billion in tax savings for business owners in 2008, according to the Senate Finance Committee's estimate, with an additional $30 billion spread out over coming years.

The Senate bill would also expand the number of individuals eligible for cash rebates to spur spending: anyone who paid payroll taxes in 2007 (not just net income tax payers), senior citizens relying on Social Security income, and taxpayers with incomes over $75,000 would get rebate checks as well. To help pay for this, the size of the checks would be reduced from $600 per person to $500 per person.

Another new provision would extend unemployment benefits by an additional 13 weeks, or an additional 26 weeks in states with high unemployment.

The NFIB, which had pressed for inclusion of more relief for small businesses in the stimulus package, says that while it's pleased with the added provisions in the Senate bill, it's most concerned that a bill is passed, and soon.

"Getting that money out into the economy as soon as possible is the most important issue at this point," says Rys.

The Senate, at least, seems poised to do just that. The Senate Finance Committee approved the bill Wednesday, clearing the way for the full Senate to consider it this week.  To top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.