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How the stimulus will affect small-business taxes

Loss carry-back provisions are extended to five from two years for firms whose annual revenue is less than $15 million. Equipment deduction and depreciation also get a boost.

March 02, 2009|Karen E. Klein

Dear Karen: How will the federal stimulus affect my small-business taxes this year?

Answer: If your business had a loss last year and you make less than $15 million in annual revenue, you can take advantage of a stimulus provision that extends loss carry-back provisions to five from two years.

"This means profits your business made up to five years ago, on which tax was paid, can now be claimed back" if you had a loss in 2008, said Chas Roy-Chowdhury, head of taxation for the Assn. of Chartered Certified Accountants. "With many small businesses just a heartbeat away from going under, and banks and other lenders not lending as they were before, this is a very welcome provision to get cash in the business," he said.

Another tax break is the equipment deduction and depreciation provision. Businesses that buy new equipment or machinery in 2009 will be able to immediately expense those assets up to a maximum deduction of $250,000. The maximum was scheduled to decrease to $133,000 before the stimulus law passed, Roy-Chowdhury said.

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How to protect personal assets

Dear Karen: Can an LLC protect personal assets?

Answer: An LLC, or limited-liability company, is a legal entity that offers entrepreneurs protection from personal liability that might arise during the operation of a business.

"Traditionally, a corporation was the go-to strategy," said Alan Gutterman, a lawyer with General Counsel in Laguna Niguel. "However, limited-liability companies have now become a widely used and accepted alternative. It is now possible to form a single-member LLC with a relatively modest set of documents."

When a business is starting out, it's difficult to get credit or a lease without giving a personal guarantee. "If guarantees are provided, it is important to negotiate for limitations on the amount and duration," Gutterman said.

Many business owners also need to buy business insurance.

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Online business start-up costs

Dear Karen: How do I figure online business start-up costs?

Answer: Pencil out your one-time start-up costs, including equipment purchases, website design, licenses and legal fees. Then figure monthly expenses such as utilities, supplies and rent. You'll need capital reserves to cover expenses until your company makes a profit.

Be frugal with your purchases. For instance, if your computer is less than 3 years old, keep it running by adding an external hard drive for less than $50 and using it to back up important files that you don't use every day, said Jeff Williams, chief executive of Bizstarters.com. Small-business software is inexpensive, and you often can sample free trial versions before you buy. You can design your own website or, for less than $1,500, get a custom design, Williams said. An e-mail promotional program, such as Constant Contact, costs less than $100 a month.

Be realistic about your costs but don't despair, Williams said. Many small firms spend $5,000 to $10,000 on start-up and operate with low overhead. "I run three profitable companies on less than $1,100 per month, and you can do it relatively cheaply also," he said.

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