Last week President Obama issued his fiscal year 2012 budget proposal to Congress along with the Treasury’s release of its “General Explanations of the Administrations Fiscal Year 2012 Revenue Proposals.” The documents reveal quite an ambitious agenda of tax proposals the Administration wishes to pass through Congress. I noted a handful of proposed items that could be of interest to our clients and also affect how we tax plan:
- Not surprisingly, one key element of the proposal is to expand the research credit by nearly 20% and make it permanent. Encouraging research, math, and science development has been an important goal of the President in maintaining global competitive advantages. Currently the credit is for 6% of qualified research expenses for the first year taking the credit OR 14% of the increase over ½ of the average of the prior three years qualified research expenses.
- A highly popular and expected initiative is to repeal the additional information reporting requirements imposed by the Affordable Care Act as they pertain to payments related to rental property. Full compliance with the 1099 reporting requirements established by the Affordable Care Act would require all landlords making payments of $600 or more for services related to their rental property to file form 1099 for the nonemployee compensation paid. This would include any and every gardener, landscaper, repairman, etc. receiving a sum of $600 from a single payer. The IRS simply does not even have the capacity to handle the volume of remittances that would result from this. This change, exempting rental property folks, would make compliance more practical.
- Replacing the current Code Sec. 179D deduction for energy efficient commercial building property with a more generous and effective tax credit, would encourage building owners to retrofit their properties. While they are not specific by any substantive measure, this should provide additional incentive for energy efficient retrofits. The fallacy with the current law is that the tax savings only exceeds by a small margin the expenses incurred to produce the documentation required to take the deduction.
- Tinkering with Sec. 179 expensing has been a popular move for economic stimulus. The Obama Administration wishes to make permanent Sec. 179 expensing of up to $125,000. It is currently $500,000 for 2011, will drop to $125,000 for 2012, and then will fall to $25,000 for tax years after 2012. This change would allow for greater flexibility in tax planning for small businesses and stimulate economic growth.
- Another emphasis of President Obama’s platform is education and they wish to make the American Opportunity Tax Credit permanent. This is by far the most generous tuition credit we have seen (originally enacted for 2009 tax year). Making this credit permanent should encourage the pursuit of higher education by putting money in your pocket.