Cynthia Harelson, CPA, PC

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December 31, 2010

To our business clients:Another year has passed…hope you all had an enjoyable holiday with friends and loved ones. Now, we gear up for another busy tax season. We want to do everything possible to make it a smooth and productive process. We’re all working hard to make your experiences with us as productive and painless as possible. A few items to note at the end of your business year:

 

Recent Tax LegislationCongress adjourned its year-end lame-duck session on Wednesday after passing legislative fixes for several pending tax issues, including the estate tax, the expiration of the 2001 and 2003 tax cuts, an alternative minimum tax (AMT) patch, and extensions of many expired provisions. However, it failed to repeal the expanded Form 1099 reporting requirements that were enacted as part of this spring’s health care reform legislation. The tax changes made during the lame-duck session were enacted as part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Tax Relief Act of 2010, PL 111-312), which Congress passed on Dec. 16, and President Barack Obama signed into law the next day.Expanded 1099 requirements. One major tax issue Congress did not resolve was the expanded Form 1099 reporting requirement. Currently, payments to corporations are excepted from the Form 1099 information-reporting requirements. But starting for payments after Dec. 31, 2011, businesses will be required to file an information return for all payments aggregating $600 or more in a calendar year to a single payee, including corporations (other than a payee that is a tax-exempt corporation). This change was made by the Patient Protection and Affordable Care Act (PL 111-148), enacted in March 2010. In addition, in a change made by the Small Business Jobs Act (PL 111-240), taxpayers who receive rental income from property will be required to issue Forms 1099 to service providers for payments of $600 or more during the year, effective for payments made after Dec. 31, 2010. According to Peter Kravitz, AICPA director–Congressional & Political Affairs, Congress is likely to revisit this issue early in 2011. However, as of Jan. 1, 2011, taxpayers who receive income from rental property should start keeping adequate records of payments, so they will be prepared to issue correct 1099s in 2012. They will also need to obtain the name, address and taxpayer identification number of the service provider, using Form W-9 or a similar form. Tax rates. The Tax Relief Act of 2010 extends the EGTRRA tax rates for two years, through 2012. The EGTRRA’s income tax rates for estates and trusts (15%, 25%, 28%, 33% and 35%) are also continued for two years. Marriage penalty. The EGTRRA expanded the size of the 15% tax bracket for married couples filing jointly and increased the basic standard deduction for joint filers to help offset the “marriage penalty” affecting two-earner couples. The Tax Relief Act of 2010 extends this marriage penalty relief through 2012. Capital gains. In 2003, the Jobs and Growth Tax Relief Reconciliation Act (PL 108-27) lowered the long-term capital gains tax rate to 15% (0% for taxpayers in the 10% and 15% tax brackets), which was also scheduled to expire after 2010. The Tax Relief Act of 2010 extends the 15% and 0% capital gains tax rates for both the regular tax and the AMT for two years. Itemized deductions and personal exemptions. The EGTRRA’s repeal of the itemized deduction phaseout and the personal exemption phaseout, scheduled to sunset in 2011, is extended for two years. Payroll tax. For 2011 only, the Tax Relief Act of 2010 reduces the rate for the Social Security portion of payroll taxes to 10.4%, by reducing the employee rate from 6.2% to 4.2% (the employer’s portion remains at 6.2%). Withholding tables. The IRS has released withholding tables for use in 2011 that reflect the changes made by the Tax Relief Act of 2010. Employers are instructed to begin using the new withholding tables as soon as possible and no later than Jan. 31, 2011.Extension of Expired Provisions A variety of temporary tax provisions, often referred to as “extenders,” expired at the end of 2009 or were scheduled to expire at the end of 2010. These expired provisions include tax credits, deductions and various tax incentives. The Tax Relief Act of 2010 extends many of these expired provisions, but a few were left expired. Some of the more notable provisions for individual taxpayers that have been extended include:

For businesses, important extended provisions include:

Additional Tax Credits Extended The following temporary tax credits are extended through 2011 by the Tax Relief Act of 2010:


Additional Deductions ExtendedThe following expired and expiring temporary deductions are extended through 2011 by the Tax Relief Act of 2010:

Other Extended ProvisionsOther expired and expiring provisions that are extended through 2011 by The Tax Relief Act of 2010 include:

Provisions Not ExtendedA few expired provisions that were contained in earlier proposed extenders legislation but that do not appear in the Tax Relief Act of 2010 include:

Some of the above items are somewhat abbreviated, so if you would like additional information on any of these items, please call our office.

Sincerely,

Cynthia Harelson,

Certified Public Accountant

 

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