OBAMA PROPOSES SMALL-BIZ TAX CUT
President Obama has fleshed out one of the jobs provisions he outlined in January's State of the Union address. Highlights of his proposed Small Business Jobs and Wages Tax Credit include:
* A tax credit of up to $5,000 for employers against their payroll taxes for every net new employee they hire in 2010. Start-ups would be eligible for half the credit.
* An additional tax credit to reimburse payroll taxes on increases in inflation-adjusted payrolls.
* A maximum credit cap of $500,000 per business to incentivize small-business hiring, and anti-abuse provisions.
* A quarterly payment option to accelerate payments to firms. Employers would have the option of receiving the tax credit on a quarterly estimated basis.
GAO CITES PROBLEMS WITH S CORP TAX COMPLIANCE
Washington, D.C. - The Comptroller General recommended that S corps need to do a better job of reporting shareholder compensation and calculating the ownership shares of corporations.
According to IRS data, about 68 percent of S corporation returns filed for tax years 2003 and 2004 (the years for which data were available) misreported at least one item. About 80 percent of the time, misreporting provided a tax advantage to the corporation or shareholder. The most frequent errors involved deducting ineligible expenses, which could decrease S corporation shareholder tax liabilities.
Even though a majority of S corporations used paid preparers, 71 percent of those that did were noncompliant. Shareholders of S corporations also made mistakes in calculating basis - their ownership share of the corporation - when taking losses passed to them from the corporation, potentially decreasing their total taxes.
Using IRS data, the GAO calculated that in the 2003 and 2004 tax years, the net shareholder compensation underreporting equaled roughly $23.6 billion, which could result in billions in annual employment tax underpayments.
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