Congress continues to do nothing. There is a lot of speculation about what they might do and when, but basically things are pretty much where they have been for months. Some think that congress will act on extending the Bush tax cuts, extending provisions that lapsed at the beginning of this year and AMT before the November elections and some think they will do something in the lame duck session after the November elections. The reason for inaction is politics – the Democrats want to make an issue of tax cuts to high income individuals and Republican opposition to other measures that help low income folks, the Republicans say the Democrats’ tax hikes hurt small business.
In a similar vein there is some speculation that congress will act to repeal the expanded 1099-MISC information reporting it made law with the health care legislation. Once again, until that actually happens taxpayers must deal with matters as they are now, not as they hope they will be.
The Estate tax: short advice is to talk to a professional that specializes in Estate taxes. GOT that? This is not a DYI activity. The vast majority of people do not wind up filing the Estate Tax Return, Form 706. But for those that do, proper advice is essential. What is different in 2010? Given that in 2010, so far, there is no estate tax, heirs will start with the decedent’s basis for assets (rather than the step up in basis of the assets at the time of death or alternate valuation date). The executor can then increase the value of up to $1.3 Million in assets to the date of death valuation. Up to $3 million extra can be allocated to the surviving spouse. The basis allocation cannot increase the asset’s basis over its value. That means for very large estates, heirs will have to pay up, but the capital gains tax is far less than the estate tax would have been AND the heirs control when they pay the tax because it is not due until the heir sell the asset.
Expanded 1099-MISC Reporting: Businesses need to have their accounting systems in place starting 2011-they need to have the ability to track the difference between payment via Debit or Credit Card, verses payment Cash, Check or Barter (to corporations) so they can take advantage of the IRS guidance. They will need Form w-9 or equivalent from all businesses with whom they exchange more than $600 per year for goods and/or services in 2011. Realize businesses are supposed to do 28 % backup withholding from businesses that refuse to supply their TIN – businesses should collect the W-9 as soon as they pay a business money in 2011, especially if they know it will add up to more than $600 by year’s end.
With respect to other tax breaks…
Statement No 1. If your favorite tax break has not been re-enacted, do not plan for it to be. Set aside some funds to pay the extra tax.
Statement No.2. Whether before or after the November elections, right now many believe:
- the tax rate cuts for taxpayers with incomes below $200,000 will be extended,
- the 15% capital gains rate will be extended,
- there will be an extension of Section 179,
- extension of Bonus Depreciation,
- extension of business and individual energy tax credits,
- extension of the state and local property tax standard deduction,
- extension of state and local sales tax in lieu of the state and local income tax deduction,
- extension of tax free distribution from an IRA,
- extension of the research credit for businesses,
- extension of enhanced charitable contributions for food inventory and corporate computer donations for education.
All of these tax cuts are expected to be revived, but see Statement No. 1. The best advice is for taxpayers must plan around things as they stand now, afterall no one predicted that congress would actually let the Estate Tax expire and yet… it did.
As always, small business services and taxation are our business. If you need help Please give Art & Business Consulting a call. We would love to engage you as a client. Please note: Our offices will be closed until October 1, 2010. We may respond to emails and calls in the interrim, but no staff will be available to meet with you in person until October 1, 2010.
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