Wednesday, April 20, 2011

The Winds of Change

Now that the tax filing date has passed and I have some extra time to notice what’s happening in the rest of the world, I’ll try and keep you posted as things of interest pop up. One thing that we should all be mindful of is the promise of change.

I know the word change has been overused a lot in the last few years when it comes to the political arena, but consider this:

Most of the provisions of the 2010 Tax Relief Act (affectionately known as the tax hike prevention act) that was passed late in 2010 expire again in 2012.

The President’s Tax Commission proposed major changes to the tax code in a report issued last August.

In the President’s speech last week he called for Congress to undertake “comprehensive tax reform” and said that we cannot afford to extend the "Bush Tax cuts”.

No matter how you look at the issue of income taxes, the least likely scenario you can imagine is status quo. In fact, its probably a safe bet that even if the rules remain the same through 2011, that 2012 will see some changes, and 2013 has the potential of massive revisions if Congress either (A) does nothing, or (B) decides to actually reform the tax code. Either way you slice it, taxes will be going UP.

Therefore, now is the time to start thinking about long term planning for your taxes, and how best to deal with the 2012 and beyond tax environment.

Friday, April 8, 2011

What were they thinking?

I haven’t written anything recently, not because there has been a lack of interesting stuff, but a lack of time on my part. Tax Season hits our business and we ramp up hours, production, and stress. All the stories you hear about accountants working late hours in a mad frenzy are true!

This last week saw Congress finally succeed in repealing a small, onerous part of the Obamacare Law that dealt with increased 1099 reporting for businesses. Under that provision, businesses would be required to issue 1099 forms for ALL payments, not just to noncorporate recipients for services. It was draconian in that if allowed to stand it would dramatically increase the amount of 1099 forms being issued by every business, and would not have accomplished its objective.

Some unknown tax writers in Washington theoretically determined that all these 1099 forms flying around would identify lots of previously unreported income that would now be taxed, and politicians were reluctant to let go of that theoretical new revenue. To see the absurdity of this argument, ask yourself this: How much additional revenue would Verizon, So Cal Edison, General Motors, & Office Depot report if they received a 1099 from each of their business customers? Answer: NONE! In fact they would actually have more expenses because they would have to pay someone to handle and throw away all those forms they receive, which would increase their costs and reduce taxable income!

At any rate this third attempt to repeal has made it out of Congress and it looks like the President will sign it.

The thing that I find most disturbing about this repeal effort is that even when faced with overwhelming support by the business community and the public, and even when presented with the estimates of the crushing paperwork burden the law would create as well as all the additional accounting costs to comply, there were still 12 Senators that voted against repeal.

Makes you wonder just what is going on back there.