Stimulus Stories: Loss Carryback May Help Small Businesses


Small business owners who have suffered losses during the economic downturn may get a boost from the federal stimulus program.

Under the American Recovery and Reinvestment Act, some business owners who have been losing money recently can claim a tax refund against taxes paid in profitable years.

It’s called "loss carryback." Tax rules let businesses carry back losses 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, according to CNN’s Money website.

The recovery act extended the number of years a business can carry back to from two to five for companies that have average annual sales of $15 million or less. Congress expanded the break to larger companies in November.

For companies that do it, the government sends them a check against 2009 losses, drawn against taxes paid on profits in prior years.

"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," Tom Ochsenschlager, vice president of taxation at the American Institute of Certified Public Accountants, told Money. "The government is paying cash. You will get a check from the government. That is going to help a lot in these tough times."

Experts note the break won’t save a systemically weak business, but can help companies with strong fundamentals weather the economic storm.

Posted by Holly Wagner