Over the weekend, I noted that there is one very difficult piece of the Small Business Tax Bill. That is the provision that requires landlords to get EIN’s from Service providers for payments over $600. So, Sam owns a condo at the Beach that he rents out. He contracts a HVAC guy to fix the Air Conditioner Unit. The bill comes to $800 including parts and labor. He then needs to ask the HVAC guy for his EIN or Social Security Number. The guy who comes to fix the heater says, “I ain’t gonna give you my social security number, I don’t give that out.” Then Sam hires a char service owned by Juanita. He asks Juanita for the company’s EIN, and she says she doesn’t have one because, we’ll she pays her workers in cash and they don’t all have no social security numbers. Now, Sam has a problem. If he deducts these services on his tax return, the IRS is going to ask him where the 1099’s are. He goes, I asked and they wouldn’t tell me. So, Sam gets smart, he asks for the EIN before he hires the worker or service provider. Now he files all these 1099’s and discovers that half of the numbers are incorrect and worse, they are someone else’s EIN and they are getting tax notices for income they never received. I heartily recommend small businesses to just put their EIN numbers on their invoices to reduce panicked January phone calls to them. Thank you Congress for giving Small Business a $120 Billion compliance bill. Keep up the good work on fixing that economy.

It appears also that in the final version of the bill, the 10 year GRAT requirement was deleted.

Another provision that was added was that if a C Corporation converts to an S Corporation, it will only have to wait from 5 to 7 years before the built in gain is ignored. That is significant because it avoids the corporate level of tax sooner. Thus if a real estate owner converted his C corporation holding real estate to an S Corporation in 2005, he can now sell his real estate in 2011 and avoid the corporate level of tax on the sale of the land owned by the Corporation. This avoids a potential 40% tax. It is only applicable through 2012 and only if it passes the House and only if the President signs the Bill.

Its been about 2 months, but things have been wierdly hectic for an end of summer. I wanted to let you know that I will be watching the Small Business Tax Bill that may or may not come out of Congress. The easiest approach would be to extend the Bush Tax cuts for all to January 1, 2012 and that would allow the next Congress to tackle tax issues on a more cohesive basis. If they put in some hybrid to deal with high income earners, that will be create some interesting issues. Will it for example exclude capital gains from the $250,000 threshhold? So, for example elderly couple wants to move into a nursing home and sells their house for $1 Million. Their basis is $40,000 and they get a $500,000 exclusion. Their adjusted gross income will be $460,000 (without even counting things like retirement and social security). Will they get hit by the new taxes? Whenever complexity is added to the Code there are opportunities for planning.