Tax Legislation in 2010Tax Legislation in 2010

Presentation to IMA January 18, 2011

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Robert C. Vaught, Managing Partner

Denise Felber, Tax Partner

ChangesChanges

The one constant in all are the “Revenue Raiser” provisions in each act.

Recent Tax LegislationRecent Tax Legislation

Mar 18, 2010- Hiring Incentives to Restore Employment Act (HIRE)

Mar 23, 2010 - Health Care and Education Reconciliation Act of 2010

Mar 23, 2010 – Patient Protection and Affordable Care Act

Sept 16, 2010 – Small Business Jobs Act of 2010

Dec 17, 2010 -Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010

Oklahoma – Suspension of Credits & New Capital Tax

Code Section 179 Code Section 179 First Year Expensing ElectionFirst Year Expensing Election

Maximum   Phase Out Begins

2010 2011 2012   2010 2011 2012

             

Law at 1/1/2010 $ 25,000 $ 25,000 $ 25,000   $ 200,000 $ 200,000 $200,000                

Hire Act 3/10/2010 $250,000 $ 25,000 $ 25,000   $ 800,000 $ 800,000 $800,000

               

Small Business Jobs              

Act 8/5/2010 $500,000 $500,000 $ 25,000   $2,000,000 $2,000,000 $200,000

Added Qualified LHI 50% 50%         

Rest and Retail $250,000 $250,000                         

2010 Tax Relief Act 12/17/2010 $500,000 $500,000 $ 125,000   $2,000,000 $2,000,000 $500,000

Recent Tax Legislation-26 “little” Recent Tax Legislation-26 “little” actsacts

Jan 2, 2011-9/11 Health and Compensation ActDec 29, 2010-Omnibus Trade Act (Health Care Credit) Dec 8, 2010 The Claims Resettlement Act of 2010 Oct 5, 2010 -Plain Writing Act of 2010 Airport Acts-7Regulated Investment Company Act-1Surface Transportation Act-1Firearms Excise Tax-1Relating to Duties and import restrictions-2Medicare, Medicaid and VA benefit Acts-4Unemployment extension-3Wall Street Reform and Consumer Protection ActExtension of Homebuyer Credit for 3 monthsHaiti Airlift

March 18, 2010 – HIRE March 18, 2010 – HIRE

• Waiver of employer portion of FICA tax for wages paid to a qualified employee that was hired between Feb 3 and Dec 31, 2010

• A credit for retaining the employee for 52 weeks (maximum of $1,000)

• The waiver is limited to 2010 and the credit is limited to 2011

• Several provisions relating to Transportation Programs

• Detail reporting of foreign investment and operations subject to a $10,000 penalty with income tax return beginning with the 2011 return.

New Health Care Provisions-Employer New Health Care Provisions-Employer ChallengesChallenges

March 23, 2010 to 2018March 23, 2010 to 2018• Phase in of policy changes to extend cover to older children,

remove preexisting conditions and remove annual and lifetime limits for certain coverage (2011-2014)

• Penalty for not covering employees-$2,000 each (2014)• Penalty for providing coverage that is not affordable to lower

paid employees-$3,000 for certain ones (2014)• Reporting to government of employee information, by month

including family information (2014)• Tax on excess health benefits to employees (2018)• Value of health benefits disclosed on W-2 (2011)• Form 1099’s for everyone-

• Payments made after Dec 31, 2011• Exception if made by credit card• Confidentiality, storage and lots of 1099• Doubled penalties for not filing

New Health Care New Health Care Provisions-Individuals and Provisions-Individuals and TrustTrust

• Penalty up to 2% of income for not having coverage (2014)• Additional .9% Medicare tax on earned income • Earnings exceeding $200,000 (single)/$250,000 (jt) • No ceiling on earnings subject to tax• Note marriage penalty of $1,350• Additional 3.8% Medicare tax on investment income• Income over: Individuals: $200,000 (single),$250,000 (jt), and trust ($11,150) • No ceiling• Note: marriage penalty of $5,700• Tax on income exceed income limit or investment income, whichever is lower.

Revenue Raisers (Taxes)Revenue Raisers (Taxes)

Example reflecting "double hit" for a single taxpayer:  

Net investment income of $ 100,000 Wages of 300,000 S Corporation (active) loss of -25,000 and MAGI of $ 375,000   MAGI of $ 375,000Investment income threshold 200,000Income over threshold 175,000

Lesser of investment income or excess over threshold $100,000Tax at 3.8% $3,800

 Salary $300,000*Base for tax 200,000Net $100,000Tax at .9% $900  Total additional tax $ 4,700

Small Business Jobs Act - Sept 16, Small Business Jobs Act - Sept 16, 20102010

Bonus Depreciation – Extended 50% bonus to 2010 (retroactive)

Sec 179 changes for 2010 and 2011Increased from $250,000 to $500,000 Increased phase out for additions from $800,00 to

$2,000,000Certain qualified real property is eligibleReduced to $25,000 and $200,000 in 2012

Certain general business credits allowed longer carry back and offset against AMT

Certain enhancements to SBA Laws and other small business initiatives

Offsets – 1099 for rental property expenses ($2.5 billion over 10 years)

- Double penalties for not filing Information reports (i.e. 1099s etc.)

Tax Relief Act - Dec 17, 2010Tax Relief Act - Dec 17, 2010

Extension of 2001 and 2003 tax provisionsLower individual tax ratesLower capital gain tax rates15% tax rate on qualified dividendsInflation adjustment for AMT exemptionDefer phase out of itemized deductions and

personal exemptionsEstate & Gift

Set $5,000,000 exemption for estate and gifts for 2011 and 2012

Payroll Tax-2011 only2% reduction to employees portion of Social Security

Tax Relief Act - Dec 17, 2010Tax Relief Act - Dec 17, 2010

Bonus Depreciation 100% for New Additions from Sept 8, 2010 through 201150% for 2012 additions

Sec 179 changes for 2012Increased from $25,000 to $125,000 Increased phase out for additions from $200,000 to $500,000Reduced to $25,000 and $200,000 in 2013

Tax Relief Act - Dec 17, 2010Tax Relief Act - Dec 17, 2010

Host of Expired Business Tax Breaks Retroactively Reinstated and Extended Through 2011

•Research Credit•New Markets•Extension of Indian Credit and Depreciation to 2010 and 2011•Numerous energy-related tax breaks and disaster relieve provisions extended through 2011

Summary - Asset AcquisitionsSummary - Asset Acquisitions

Bonus Depreciation – new assets with lives less than 15 years.

50% Jan 1- Sep 7, 2010 100% Sep 8, 2010-December 31, 2011 50% 2012-expiring on December 31

Sec 179 write-off – new or used assetsPhase out for large dollar acquisitionsLimited if business has a loss

Indian Depreciation extended through 2011

Recent Tax Legislation - Recent Tax Legislation - OklahomaOklahoma

• Changed to employment requirement for Quality Jobs Act from 12 to 24 months.

• Moratorium on investment credits from July 1, 2010 to June 30, 2012

• Moratorium on 30 other credits

• Replaces the Franchise tax and LLC fee with Business Activity tax equal to $25 plus 1% of net revenue for 2011 and 2012. Limited to 2010 franchise tax-effect is to tax every business with $25 fee (Schedule C’s, LLP, etc)

IRC Sec. 199 – Qualified Producer Deduction

New reporting requirements for certain 2010 transfers of stock to anemployee under an or a qualified ESPP. Form 3921 or 3922 1/31/11.

Quick refund if 2010 overpayment.

• Both sides of House and Senate are clamoring for tax changes/reform

• National Taxpayer Advocate’s Report to Congress – Tax Reform is Highest Priority

• Obama’s Deficit Reduction Commissions Report

• Flat Tax?• Fair Tax?• VAT?