Monday, September 27, 2010

Tax law signed today

Even though Congress is avoiding major decisions on tax law changes that must occur this year until after they see who is reelected, they managed to pass a bill which Pres Obama signed earlier today into law. You will hear media hype about the Small Business Jobs Act of 2010, but what you may not hear are the details of the tax provisions that were included. Lets take a look at some of them:

The Act allows businesses to expense equipment purchases up to $500K for 2010 and 2011. It also allows for a bonus expensing of 50% of the excess for assets bought in 2010 only.

Gain on sale of certain “qualified” small business stocks are 100% excluded from income tax. This only applies for qualified stocks purchased between today and Dec. 31. Big Deal.

Certain tax credits (think R&D) formerly rendered useless by Alternative Minimum Tax will be allowed. This only applies to credits determined in 2010 and later years.

Self Employed Health insurance deductions will now also be a deduction against the self employment tax. Previously these only lowered income taxes but did not help self employed folks lower the SE tax too. This provision will actually affect a lot of taxpayers and will be a welcome change.

1099 forms are now clearly required to be issued by owners of rental real estate. Same $600 requirement as small business owners. This starts in 2011. The Act also increases first tier penalties for failure to file 1099 forms to $30 each, second tier $60.

Cell phones were pulled from the listed asset list which requires detailed record keeping to substantiate business use. No longer will IRS be able to claim that you must keep a log of all cell phone calls to determine business use.

As you can see most of these provisions have a very limited impact to a narrow group of taxpayers. What we really need is major reform, or at least certainty, on the bulk of the tax changes that expire this year (and the estate tax that expired last year) and are going to slam virtually every taxpayer unless something is done.

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