Many tax changes enacted and some still pending
Enacted Tax Legislation
The year 2009 was certainly another active year for tax law changes. One that will impact nearly all Americans who use a tax preparer is the requirement for mandatory e-filing of individual, estate or trust returns filed after December 31, 2010 if the return is prepared by a tax preparer that prepares more than 10 returns. Some of the other federal changes include:
- An enhanced 5 year net operating loss carryback for NOLs incurred in 2008 or 2009.
- Extension of the homebuyer’s credit to April 30, 2010 and the addition of a credit for long-time residents.
- For tax years beginning after December 31, 2009, the penalty for failure to file a partnership or S corp return increases from $89 to $195 per K-1.
- Beginning in 2011, every federal, state and local government will be required to withhold tax at a rate of three percent on certain payments to persons providing any property or services (unless such payments are already subject to withholdings under other provisions).
- Eligible businesses will be able to recognize cancellation of certain indebtedness over five years beginning in 2014. This treatment applies to specified types of business debt repurchased or forgiven by the business after December 31, 2008 and before January 1, 2011.
- The Hope Credit has been renamed the American Opportunity Education Credit and has been enhanced for the years 2009 and 2010. The new law also raises the maximum credit, extends it over four years of post-secondary school education, and makes 40 percent of the credit refundable.
- Beneficiaries of 529 plans are permitted to use tax-free distributions to pay for computers and computer technology during 2009 and 2010.
- The residential energy credit has been reinstated for 2009 and 2010.
- Generally, an investor other than an entity doing business as a C corporation may exclude 50 percent of the gain from the sale or exchange of “qualified small business stock.
- The 50 percent exclusion has been raised to 75 percent. However, the increase is temporary and applies to stock acquired after the date of enactment and before January 1, 2011. Holding period rules also apply.
- Producers of alternative and renewable energy are definite winners with the enactment of temporary incentives.
Pending Tax Legislation
The Tax Extenders Act of 2009 passed the House but had not yet passed the Senate as of this writing. The bill would extend through 2010 numerous provisions set to expire at the end of 2009. Bonus depreciation and enhanced Section 179 expensing on equipment purchases expired at the end of 2009. The President has proposed another year’s extension of these two items.
Expiration of the Bush Tax Cuts –
In 2011, the Bush tax cuts are set to expire. Some of the provisions may be extended and others may not. It is anticipated that the top two income tax rates, currently 33% and 35%, will be allowed in 2011 to increase to the old rates in effect prior to the enactment of the legislation (36% and 39.6%). The existing tax code calls for no estate tax whatsoever for one year, 2010, but then reinstates it starting in 2011 with pre-2001 rates that are much higher than those now in effect. A bill that passed the House would make permanent the estate, gift and generation-skipping transfer tax law in effect for 2009. It is unknown whether this would be effective for 2010 or 2011.