Tax News

The President's FY 2012 budget proposals include scores of tax proposals for businesses, individuals, and investors
: : Jason Reid Saladino, CPA, PFS
Managing Partner | G.R. Reid Associates, LLP
631.425.1800 ext. 309
http://www.grrcpas.com

On February 14, the President issued his FY 2012 budget proposals, accompanied by the Treasury's release of its “General Explanations of the Administration's Fiscal Year 2012 Revenue Proposals. These documents reveal that the Administration has a robust agenda of tax proposals it will try to get Congress to enact. There are scores of changes for businesses, individuals and investors.

Tax proposals for businesses and investors include:
•    Expanding the research credit by nearly 20% and making it permanent.

•    Revamping the Federal Unemployment Tax Act (FUTA) tax. Currently, the tax is 6.2% through June of 2011, and 6.0% for the remainder of calendar year 2011 and later years. It's levied on the first $7,000 paid each employee as wages during the calendar year. Under the budget proposal, the FUTA rate would remain at 6.2% after June of 2011, and, beginning in 2014, the FUTA wage base would be raised to $14,000.

•    Repealing the use of the LIFO inventory accounting method. Taxpayers currently use this method would be required to write up their beginning LIFO inventory to its FIFO value in the first tax year beginning after Dec. 31, 2012, but this one-time increase in gross income would be taken into account ratably over ten years, beginning with the first tax year beginning after Dec. 31, 2012. •    Taxing as ordinary income a partner's share of income on an “investment services partnership interest” (ISPI) in an investment partnership, regardless of the character of the income at the partnership level. The partner would have to pay self-employment taxes on such income, and gain recognized on the sale of an ISPI would generally be taxed as ordinary income, not as capital gain. In general, an ISPI would be defined as a carried interest in an investment partnership that is held by a person who provides services to the partnership. These changes would apply for tax years beginning after Dec. 31, 2011.

•    Barring a deduction for punitive damages. Where the liability for punitive damages is covered by insurance, such damages paid or incurred by the insurer would be included in the gross income of the insured person. These changes would apply to damages paid or incurred after Dec. 31, 2012.

•    Repealing the lower-of-cost-or-market inventory accounting method, and the subnormal goods method, effective for tax years beginning after Dec. 31, 2012.

•    Repeal the additional information reporting requirements imposed by the Affordable Care Act, but requiring businesses to file an information return for payments for services or for determinable gains aggregating to $600 or more in a calendar year to a corporation (except a tax-exempt corporation).

•    Permitting IRS to require prospective reclassification of workers who are currently misclassified and whose reclassification has been prohibited under current law. This would apply upon enactment, with a transition rule.

•    Replacing the current deduction for energy efficient commercial building property with a more generous and effective tax credit that will encourage building owners to retrofit their properties.
   
•    Making permanent the Section 179 rule allowing up to $125,000 to be expensed. (Under current law, the maximum expensing amount is $500,000 for tax years beginning in 2010 or 2011, dropping down to $125,000 for tax years beginning in 2012, and then falling to $25,000 for tax years beginning after 2012.)


Tax proposals for individuals include:
... Allowing the 2001 and 2003 tax cuts to expire for households making more than $250,000 per year, and restoring the estate tax to 2009 levels. Both these changes would be effective beginning in 2013.

... Limiting the tax subsidy for itemized deductions for high-income families to 28%.

... Making the American Opportunity Tax Credit permanent (under current law, it won't apply after 2012).

... Permitting borrowers to exclude loan forgiveness on certain student debt provided that they have met their repayment obligations for the 25-year period required by Federal repayment programs. (For many students on income-contingent or income-based repayment plans, at the end of their payment plans any outstanding balance on their loans is forgiven. Under current law, those forgiven amounts are taxable.)

... Increasing tax credits for child care and dependent care expenses, and permanently expanding the Earned Income Tax Credit for families with 3 or more Children.

... Providing for “Automatic IRAs” in the workplace and giving employers automatically enrolling their employees in IRAs tax credits of up to $250 a year for two years.

... Eliminating required minimum distributions (RMDs) for taxpayers with aggregate IRA and tax favored retirement plan account balances of $50,000 or less, effective for taxpayers attaining age 70-1/2 after Dec. 31, 2011.

... Allowing a surviving non-spouse beneficiary to make 60-day rollovers from a retirement plan or IRA to a non-spousal inherited IRA, effective for distributions after Dec. 31, 2011.