The crisp note of fall in the air means more than pumpkin patches and turkey dinners: Think pending legislation and other end-of-year business matters that could affect a small business' bottom line. Under review is legislation affecting net operating loss carryback tax and extensions of unemployment benefits, and being considered are amendments to flexible spending accounts:
>> Retail-saving tax 'carryback' legislation under review
There could be a lot less holiday cheer for some retailers who may not have enough cash to buy inventory unless Congress passes "net operating loss carryback" tax legislation. The holiday season generates between 25 percent and 50 percent of most merchants' annual revenue, according to the National Retail Federation (NRF).
The Net Operating Loss Carryback Act -- presently under review by the House Committee on Ways and Means -- would allow businesses suffering losses during 2008 or 2009 to "carry back" those losses to offset profits from up to five years ago. Then the companies would receive tax refund checks that would provide an infusion of cash. Losses can already be carried back for up to two years, but in the current economic climate some companies have seen low profitability for several years.
The five-year carryback period was included in February's economic stimulus plan, but was limited to companies with up to $15 million in annual gross receipts and applied only to losses suffered during 2008. The new legislation would allow the five-year period to apply to companies of any size and to losses from either 2008 or 2009.
In addition to being carried backward, tax law allows net operating losses to be carried forward and applied against future profits for up to 20 years. The NRF (www.nrf.com), which supports the bill (H.R. 2452), said that means the proposed five-year carryback period is "merely an advance on a tax refund that would be due to them in the future" but would come in time to make a difference in whether a company survives.
Rachelle Bernstein, NRF's vice president and tax counsel, testified at a House Small Business Committee hearing on the tax provisions set to expire at the end of the year.
"If struggling retailers cannot finance inventories for the 2009 holiday season -- their greatest opportunity for revenue for the year -- they could go out of business," she told the committee. "Extension of the NOL carryback period would provide an important source of capital to finance ongoing operations and retain employees. If NOL carryback is not enacted soon, tens of thousands of additional retail jobs will be lost."
>> Bill looks to extend unemployment benefits
A bill that would give jobless workers about to lose their unemployment benefits a 13-week reprieve passed in the House of Representatives with a vote of 331-83 in late September. It applies to 27 states plus the District of Columbia and Puerto Rico with unemployment rates of 8.5 percent or higher. It is now in the Senate awaiting a vote.
States that are closing in on the threshold of 8.5 percent could be eligible later for additional weeks of benefits this year. But it would not give any extra benefits to the longtime unemployed in states that have lower levels of joblessness, including Nebraska, North Dakota and Utah. According to the U.S. Bureau of Labor Statistics, the U.S. unemployment rate now is 9.6 percent and economists see it topping 10 percent in 2010. Some 5 million people, about one-third of those unemployed, have been without a job for six months.
The bill (H.R. 3548) would cost $1.4 billion. Reportedly, it does not add to the deficit because it raises money from extension for a year of a federal unemployment tax, costing about $14 an employee per year. That tax, which brings in about $7.2 billion in a year, has been on the books for 30 years, with the money going into the federal unemployment insurance trust fund. The bill would also require better reporting on new employees to reduce unemployment insurance overpayments.
>> Flexible spending accounts face potential cuts
The Senate Finance Committee (http://finance.senate.gov/) is proposing that tax-free flexible spending accounts (FSA) be pared back. The legislation would limit FSA contributions by imposing a $2,500 cap (initially proposed at $2,000) on contributions that would not adjust with inflation, beginning in 2013.
It would also standardize the expenses that are qualified. Currently, employers can set the yearly contribution limit. Federal employees, for example, have a cap of $5,000.
Health savings accounts (HSA) also are being scrutinized by the Senate Finance Committee. Presently, if an employee changes jobs and, subsequently, withdraws the HSA money for non-health related expenses before age 65, the account holder will pay income tax plus a 10 percent penalty. The committee would increase the penalty to 20 percent, beginning in 2010.