How the Stimulus Package Can Help Small Businesses Rated:

On February 17, 2009, President Barack Obama signed the American Recovery and Reinvestment Act - more commonly referred to as the stimulus package - into law.

The $787 billion legislation was aimed at helping stimulate the country's economy and restore economic growth by encouraging spending and investment, as well as offering tax relief.

How can the stimulus package benefit small businesses?

The stimulus package contains a number of provisions aimed at helping small businesses. Some of these benefits involve more favorable tax deductions, which can be calculated using finance software. Others are aimed at unfreezing the credit market and increasing loan availability for small firms.

Here are some of the most significant provision:

Higher limit for equipment deductions - Section 179

Each calendar year, small businesses may be able to write off qualifying equipment purchases - such as machinery, vehicles, and finance software - using the Section 179 deduction. This allows you to deduct the cost of such equipment during the same year you make the purchase, rather than depreciating its value over several years.

The 2008 Economic Stimulus Act increased the threshold for this deduction to $250,000 and also boosted the phase-out level to $800,000. The 2009 stimulus package maintains those maximum limits in order to encourage capital expenditures, meaning the same deduction can be applied during the 2008 or 2009 tax years.

Bonus asset depreciation deduction

If you buy business property and put it into use between January 1, 2008 and December 31, 2009, this section of the stimulus bill can provide additional savings.

The 2009 stimulus maintains last year's provision stating that businesses can deduct 50 percent of these purchases, while applying the remaining value to your usual depreciation tax deduction. Your finance software can help you take advantage of this special deduction.

Increased depreciation deduction for vehicles

The maximum first-year depreciation deduction for companies that purchase new passenger cars, vans or light trucks for business use has been extended by $8,000. For example, this means that new cars would have a maximum limit of $10,960, while new light trucks and vans would have a $11,060 threshold.

Potential to extend NOL carrybacks

The 2009 stimulus package contains the temporary option of extending the net operating loss (NOL) carryback period for 2008 losses to three, four or five years. Usually, there is a two-year rule. Businesses must have annual receipts of $15 million or less to be eligible.

Lower payments for estimated tax

If you make less than $500,000 in 2009 and 50 percent is derived from your small business, you are only obligated to pay 90 percent of your estimated taxes. Small business owners usually pay these taxes based on 100 percent to 110 percent of the previous year's tax amount. Business finance software can help you calculate your tax responsibility.

SBA Loans

The stimulus bill also aims to increase small business' access to loans through initiatives involving the Small Business Administration (SBA).

Lower fees for loans. First of all, the SBA is permitted to eliminate or decrease fees associated with its 7(a) and 504 loan programs. 7(a) loans are issued by banks to small businesses to support their operations, while 504 loans are for companies that need to purchase land, buildings, machinery or equipment.

Typically, fees paid by small business owners range are based on the guaranteed part of the loan and range from 2 percent to 3.75 percent, depending on the size of the loan.

The SBA predicts that it will be able to continue eliminating fees on these loans through December 31, 2009. Also, it says it will retroactively refund fees on eligible loans that were approved on or after February 17, 2009.

More guarantees. Second, the SBA can now provide a 90 percent guarantee for some of the loans in its 7(a) program, an increase from the previous guarantee of 75 to 85 percent. This change benefits small business owners because it lessens a lender's risk, making them more willing to extend credit.

Restoring market confidence. Finally, the SBA is collaborating with the Treasury to help free up the secondary market for its loans. The government has pledged $15 billion towards this goal. According to Eric Zarnikow of the SBA, approximately 40 percent of SBA-guaranteed loans are sold onto a secondary market every year.

However, due to the recession the market for these loans has slowed significantly, meaning that banks have become more reluctant to extend credit to small businesses. The government hopes that its actions will help unfreeze that market and restore confidence to lenders, so that they are able to extend more new loans to smaller companies.