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On April 14, President Obama signed into law a bill to repeal controversial expanded information reporting on Form 1099 for certain business payments and rental property expense payments.   This means:

Only payments to service providers in excess of $600 must be reported on Form 1099.  (Requirement to issue to all vendors has been repealed.)

There is no requirement to send a Form 1099 to a corporation (unless the payment is for medical or legal services.)

Landlords have fewer 1099 reporting requirements.

Want more information?  Contact me to discuss your situation.

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Last week, the House of Representatives passed the Small Business Paperwork Mandate Elimination Act of 2011. The bill would repeal the expanded Form 1099 information reporting requirements mandated by last year’s health care legislation. It would also repeal the new 1099 reporting requirements imposed on taxpayers who receive rental income.

This bill will now move to the Senate for consideration. That chamber has already passed its own version of 1099 repeal. However, the Senate’s version of repeal only addressed the health care law’s 1099 requirement and not the rental property 1099 requirements.

The House and the Senate will have to reach agreement on a revenue offset before a bill can be sent to President Barack Obama. White House opposition to the revenue offsets contained in both bills makes the road to final passage unclear.

So continue to maintain appropriate records to comply with the new 1099 reporting requirements and be sure to check back regularly to follow the status of this legislation.

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Last week, the Senate approved an amendment to repeal the expanded 1099 information reporting requirements in the health care reform law. The repeal must still pass the House before it can be sent to the president. A bill to repeal the provision, the Small Business Paperwork Mandate Elimination Act of 2011, has already been introduced by Rep. Daniel Lundgren. That bill, which has been referred to the House Committee on Ways and Means, has 263 cosponsors.

It’s been widely reported that 1099 repeal has broad bipartisan support. Stay tuned to this blog for updates on the legislative status.

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The Illinois Legislature voted to approve a bill (Senate Bill 2505) that would substantially increase both corporate and personal income tax rates. The bill would also amend estimated tax, net loss, and estate tax provisions. If Governor Pat Quinn signs the bill into law, the legislation would take effect immediately.  Major provisions include:

Corporate income tax rate. The bill would increase the corporate income tax rate to 7% for taxable years beginning on or after January 1, 2011 and prior to January 1, 2015; 5.25% for taxable years beginning on or after January 1, 2015 and prior to January 1, 2025; and 4.8% for taxable years beginning on or after January 1, 2025. The current rate is 4.8%.

Personal income tax rate. The bill would increase the personal income tax rate to 5% for taxable years beginning on or after January 1, 2011 and prior to January 1, 2015; 3.75% for taxable years beginning on or after January 1, 2015 and prior to January 1, 2025; and 3.25% for taxable years beginning on or after January 1, 2025. The current rate is 3%.

Net loss carryover. The bill provides that, in the case of a “C-corporation,” no carryover NOL deduction would be allowed for any taxable year ending after December 31, 2010 and prior to December 31, 2014.

Estimated tax safe harbor provision. The bill would raise the upper limit for safe harbor estimates to 150% of prior year tax.

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The recently enacted “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010” is a sweeping tax package that includes, among many other items, an extension of the Bush-era tax cuts for two years, estate tax relief, a two-year “patch” of the alternative minimum tax (AMT), a two-percentage-point cut in employee-paid payroll taxes and in self-employment tax for 2011, new incentives to invest in machinery and equipment, and a host of retroactively resuscitated and extended tax breaks for individuals and businesses. Here’s a look at the key elements of the package:

* The current income tax rates will be retained for two years (2011 and 2012), with a top rate of 35% on ordinary income and 15% on qualified dividends and long-term capital gains.
* Employees and self-employed workers will receive a reduction of two percentage points in Social Security tax in 2011, bringing the rate down from 6.2% to 4.2% for employees, and from 12.4% to 10.4% for the self-employed.
* A two-year AMT “patch” for 2010 and 2011 provides a modest increase in AMT exemption amounts and allows personal nonrefundable credits to offset AMT as well as regular tax. Without the patch, an estimated 21 million additional taxpayers would have owed AMT for 2010.
* Key tax credits for working families that were enacted or expanded in the American Recovery and Reinvestment Act of 2009 will be retained. Specifically, the new law extends the $1,000 child tax credit and maintains its expanded refundability for two years, extends rules expanding the earned income credit for larger families and married couples, and extends the higher education tax credit (the American Opportunity tax credit) and its partial refundability for two years.
* Businesses can write off 100% of their new equipment and machinery purchases, effective for property placed in service after September 8, 2010 and through December 31, 2011. For property placed in service in 2012, the new law provides for 50% additional first-year depreciation.
* Many of the “traditional” tax extenders are extended for two years, retroactively to 2010 and through the end of 2011. Among many others, the extended provisions include the election to take an itemized deduction for state and local general sales taxes in lieu of the itemized deduction for state and local income taxes; the $250 above-the-line deduction for certain expenses of elementary and secondary school teachers; and the research credit.
* After a one-year hiatus, the estate tax will be reinstated for 2011 and 2012, with a top rate of 35%. The exemption amount will be $5 million per individual in 2011 and will be indexed to inflation in following years. Estates of people who died in 2010 can choose to follow either 2010′s or 2011′s rules.
* Omitted from the new law: Repeal of a controversial expansion of Form 1099 reporting requirements.
* Also not included: Extension of the Build America Bonds program, which permits state and localities to issue federally-subsidized municipal bonds.

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Last night, the House of Representatives passed a new tax law, virtually unchanged from what President Obama proposed last week. Major provisions include an extension of 2010 tax rates for an additional 2 years (through 2012,) an AMT “patch” for 2010 only, and a “payroll tax holiday” for 2011 only. Watch for additional updates as the final bill is published and signed by the President.

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Yesterday, President Obama announced he and Congressional leaders had an agreement on tax law for next year. The key provisions include keeping the same tax brackets for ALL taxpayers for TWO years, a “payroll tax holiday” for employees, and a $5 estate tax exemption.

Although government leaders agree on the plan, it is unclear whether it will pass unaltered through both houses of Congress and become law. However, this topic, along with unemployment benefits tied to this legislation, is priority number one for Congress right now.

Hopefully we’ll have a law by next week.

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A meeting between Congressional leaders and the President originally scheduled for today has been postponed until November 30. Is this a sign an agreement may not be reached, or gamesmanship on the part of Republicans who initiated the delay? Time will tell, but it looks like we won’t know anything before December.

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If you’ve been following my blog or listening to my monthly tax tips, you no doubt are attuned to any news about new tax laws. So naturally, you paid attention yesterday to all the news accounts outlining a plan to take away the home mortgage interest deduction and raise the tax rate on capital gains. The optimist might have heard the plan to cut individual tax rates with a top rate of 23 per cent.
This was big news yesterday with everyone from NPR, to the Wall Street Journal to the nightly news covering the story. Here’s my take away: this is a report from the President’s deficit reduction panel. It is not a proposed tax law. Although some of the proposals may eventually become law, these details will not be acted upon by the end of the year.
Keep checking this blog for updates as current tax law proposals make their way through Congress.

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