When Congress recessed at the end of September it left with much unfinished business. Whether any decisions on these issues can be made during a lame duck session after Election Day and before the end of 2010 is anybody's guess.

Form 1099

Despite the best efforts of the national small business world and a number of Members of Congress and the Senate, the requirements to file form 1099 for all vendors with whom a business spends at least $600 remain in place. And this includes providing 1099s to vendors who you typically pay by credit card (Office Depot or Staples, airlines, Fed Ex for example). This onerous legislation was part of the health care reform legislation. The small business community will push for action during the lame duck Congressional session and if that is not successful, the issue will surely be a top priority in 2011. A change in House or Senate majorities is the most likely way a change in this requirement will occur.

Small Business Jobs Bill

On September 27th, The President signed the "Small Business Jobs Bill." The bill contains some bad news, some good news and some no news. The bad news is that the law has increased penalties for inadvertent filing errors related to Forms 1099, the tax information reporting form. The no-news is that Congress did not repeal the provision that increased the number of Forms 1099 that small businesses have to file for vendors of goods or services. The good news highlights include:  Increase of Section 179 Expensing and Expansion to Certain Real Property.  For the taxable year beginning in 2010, taxpayers may write off up to $250,000 of these capital expenditures subject to a phase-out once these capital expenditures exceed $800,000. This bill increases the thresholds to $500,000 and $2,000,000 for the taxable years beginning in 2010 and 2011. At the end of 2011, the amounts would revert to $25,000 and $200,000, respectively.  Extension of Bonus Depreciation Businesses are allowed to recover the cost of capital expenditures over time according to a depreciation schedule. Congress temporarily allowed businesses to recover the costs of certain capital expenditures made in 2008 and 2009 more quickly than under ordinary depreciation schedules by permitting those businesses to immediately write off 50 percent of the cost of depreciable property placed in service in those years. This bill extends the additional, first-year 50 percent depreciation for qualifying property purchased and placed in service in 2010.  Deductibility of Health Insurance for the Purposes of Calculating Self-Employment Tax Under current law, business owners are not permitted to deduct the cost of health insurance for themselves and their family members for purposes of calculating self-employment tax. This new provision would allow business owners to deduct the cost of health insurance incurred in 2010 for themselves and their family members in the calculation of their 2010 self-employment tax.

Cell Phones

You no longer have to log personal use of business-provided cell phones and similar equipment and pay tax on the personal use of the equipment. The rule was widely ignored anyway.

Some Real Important Pending Tax Issues

There is extensive potential for real economic damage unless Congress acts before the end of the year. In 2001, the regular income tax rates of 28 percent, 31 percent, 36 percent and 39.6 percent were reduced to 25 percent, 28 percent, 33 percent, and 35 percent, respectively. Unless Congress acts by year end these rates will revert to the pre-2001 income tax rates and other items including a child care credit, family and education expense deductions, and marriage rate penalty relief will also expire at the end of the year. The top marginal rate has been the big concern for small business. In addition, the reduced capital gains rate and the reduced dividends tax rate expire at the end of the year. Until the end of 2010, the maximum rate of tax on the adjusted net capital gain of an individual is 15 percent. Starting next year, the maximum rate of tax on the net adjusted capital gain of an individual will be 20 percent. Until the end of this year, an individual's qualified dividend income is taxed at the same rates that apply to net capital gain. For taxable years beginning after 2010, dividends received by an individual are taxed at ordinary income tax rates. The estate tax is currently repealed. It returns in 2011 with a top marginal rate of 55 percent and an individual exemption of $1 million. The temporary increases in the income thresholds at which the Alternative Minimum Tax (AMT) is applied have already expired, and if Congress does not act, the AMT will apply at lower starting income levels for the current tax year.

Congress Adjourns for Campaign Season with Lame Duck Expected

At the end of September, the 111th Congress adjourned so the members could return home to campaign for reelection. Left behind was a substantial amount of unfinished business. In the last several months of its regular session, Congress has had little appetite for any significant legislation. A lame duck session of Congress is certain to follow the election but even that is unlikely to achieve final passage of critical legislation setting the Federal budget for fiscal year 2011 (which started October 1, 2010) or authorizing the Federal highway program. Normally, Congress enacts 13 separate appropriations bills to provide funding for all Federal departments and agencies. This year, however, partisan differences and concern over the increasing Federal budget deficit have prevented any of those separate bills from passing Congress. This stalemate is not expected to be relieved during the lame duck. Instead, Congress will almost certainly pass a "Continuing Resolution" or "CR" that will simply continue current (fiscal year 2010) funding for a set period of time, probably sometime next spring, and turn the problem over to the next 112th Congress. The outlook is not much brighter for highway reauthorization, where Congress and the Administration have been unable to reach agreement on the size, structure and funding of the next multi-year Federal highway program. The current program, originally scheduled for six years, actually expired by statute on October 1, 2009, and has received short term extensions since then with the latest extension expiring on December 31, 2010. Key transportation members and staff have told ARVC that the most likely prospect is for current highway funding to be extended during the lame duck for one or two years. This will mean a continuation of the protracted debate over the scope and parameters of the program. Although President Obama recently proclaimed support for a six year $50 million infrastructure investment program that would largely rely on a new National Infrastructure Bank for funding, it has been perceived as a new "stimulus" plan and has received little support in Congress so far. The latest wrinkle is apparent Administration interest in moving away from the long-established "formula" funding approach whereby the States are given highway money automatically on the basis of a distribution formula that includes population, miles of highways, gas tax revenue collected and other factors. Instead, the Administration has suggested much greater reliance on competitive grants that would be awarded by the Federal government on the basis of clear national criteria.