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Changes to tax laws helping American businesses in bad economy

By Michael Bearak     Feb 18, 2010 in Business
The United States' Internal Revenue Service is doing its part to help small businesses stay afloat in these troubling economic times. It isn't as hard to qualify as one might think.
While the recent economy has hit everyone hard, many small businesses have been forced to close their doors.
Bill Hewitt, a man who owns several real estate ventures in Denver, saw his business opportunities begin to fall off over the last while. In a recent interview with CNN, Hewitt said he always paid his taxes on time and in full. When he didn't make a profit and posted a loss, he told the IRS.
Working with an accountant, however, Hewitt learned he could carry his loses back five years, if he qualified. Being able to go back and file amended returns earned Hewitt $150,000 from the IRS which he used to pay bills and salaries of his employees.
The IRS used to let people go back two years with filing amended returns, but now it allows you to go back five years in an effort to help businesses stay afloat in this current economy. The maneuver is referred to as "loss carryback." When a company posts a profit they have to pay taxes on the earnings, but when a company loses money in later years, tax laws allow a business to "carry back" their losses and deduct money from previous years' profits.
Previously, the law was designed for companies that made $15 million or less per year in average annual sales. Then the Recovery Act window was made larger and allowed companies of that size to go back five years from the original two. Last November, Congress expanded it once again to allow all businesses of any size to carry 2008 and 2009 losses back five years. On top of that, it wont touch profits from earlier years like in 2006 or 2005, if applicable.
Tom Ochsenschlager, vice president of taxation at the American Institute of Certified Public Accountants told CNN, "The only company that could benefit from this is one that has been profitable and is currently having difficulty--and that is the kind of company that you want to help. That is going to help a lot in these tough times."
Hewitt benefited from these law changes too. He was very candid in the CNN report that he wouldn't have been able to keep his doors open had it not been for this law change. He has also seen his staff shrink from 50 to 30.
"Banks will ask you to fill out papers and run you around, but they are not lending," he said. "All the lines of credit have dried up."
More about Tax refunds, Small businesses, Loss carryback, Recovery act
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