Sick of sending big checks to the IRS? For some business owners, this tax season will bring a rare reversal: A stimulus-fueled tax change is putting cash back into the pockets of qualifying entrepreneurs, according to a story at CNNMoney.
Bill Hewitt, who owns several real estate ventures in Denver, recently collected a $150,000 refund check from the IRS thanks to the new tax rules. “Without that money, I probably would have gone under,” he says. “When you can’t get any loans from anybody, it kept me alive.”
Hewitt took advantage of a tax maneuver called “loss carryback.” When a business books a profit, it pays income tax on its earnings. But if the business then turns a loss in later years, tax rules allow the business to “carry back” its loss and deduct the money from earlier profits. By filing an amended tax return for the earlier, profitable year, the business can claim an immediate refund on the taxes it paid.
IRS rules usually let companies carry back a loss into the prior two years. That means a business with a loss in 2009 could go back and amend its 2007 taxes, but any profits from 2006 or 2005 would be untouchable.
But last year’s Recovery Act extended the window for small companies, allowing businesses with average annual sales of $15 million or less — like Hewitt’s — to carry their 2008 losses back five years. In November, Congress expanded the tax break even further, allowing businesses of all sizes to carry their 2008 and 2009 losses back for five years.
Photo by fabulousfinancials.