Newsletter

In a recent move by Congress, expanded 1099 reporting requirements were repealed in April, 2011.

Background
Expanded 1099 reporting requirements were included in Health Care Reform legislation to help pay for the bill. The major changes were:

New 1099 reporting was required from all businesses doing $600 or more during a calendar year with a single vendor. This provision expanded the definition of vendor to include corporations and payments made for property. The expanded reporting applied in 2012 and beyond.

Starting in 2011, individuals who received rental income would issue 1099s to service providers for cumulative payments in excess of $600.

Penalties for non-filing and non-timely filing of 1099s were also increased. Most of the fines were doubled per occurrence with the calendar-year maximum penalty increased dramatically (now $75,000 - $500,000).

The Repeal
The repeal effectively eliminates the newly expanded 1099 reporting back to the current law. However, the higher penalties for late filing will stay in place.

What it Means

You no longer need to issue 1099s to corporate entities.

Rental property owners are no longer subject to the expanded 1099 provisions. You should continue to file 1099s as done prior to the law change.

Increased penalties stay in place making timely filing of 1099s much more important.

Last month, hundreds of thousands of Americans received emails apologizing for an email security breach from large institutions like Citi, Best Buy, USBank, Target, TiVo, Capital One, and JP Morgan Chase.

All of these companies used the same email service company, Epsilon, to manage email communications with their customers. Every year, Epsilon sends over 40 billion emails on behalf of its over 2,500 customers. About 50 of those customers were affected by the breach in security.

What was taken? The security breach resulted in an unknown party gaining access to individuals' names and email address. No social security or financial information was obtained.

Should I be worried? While there is no way for the information to lead to a direct threat of individuals' online security, there is an increased risk for targeted phishing attacks. The attackers may use the information gained to create targeted emails directed to individuals that appear to come from the company they have a relationship with and ask you for protected information.

Many expiring tax provisions were extended with the passage of tax legislation in December, 2010. Some of these provisions provide a unique tax planning opportunity prior to the end of 2012. Chief among these are:

Tax Rates. Unless Congress acts, the 10% income tax bracket will be eliminated and replaced with the 15% tax bracket and upper income tax rates will rise 3 to 3.6%.

Capital Gains Tax Rates. The minimum capital gains tax rate remains at 0% for those in the 10 and 15% income tax brackets, while the maximum capital gains tax rate stays at 15% through 2012. After this date, the 0% rate could revert to 10% with the maximum capital gains tax rate going to 20%.

Ordinary Dividend Taxes. One of the more dramatic rate increases will occur after 2012 when ordinary dividends could once again be taxed as ordinary "income" (top tax rate of 39.6%). Currently these same dividends are taxed like capital gains with a minimum 0% tax and a maximum 15%.

Phase-outs Back. The tax provisions that eliminate some of your deductions and tax exemptions are now scheduled to be re-enacted after 2012.This means upper income taxpayers will be hit with two tax increases; one in the tax rate and one in the elimination of income deductions.

What does this mean for you? Now is the time to review your situation and forecast different scenarios to ensure you are not caught by surprise when these tax changes occur.