The leaders of the Senate Finance and the House Ways and Means Committees have reached agreement on a tax package aimed at providing nearly $5 billion in tax relief for small businesses.
The catch is that the relief is tied to the minimum wage increase in a supplemental spending bill that is up for debate in Congress sometime this week. Senate Finance Committee Chairman Max Baucus has said that even if President Bush vetoes the package, the tax provisions will see the light of day again.
The largest of the bill’s provisions is a three-and-a-half year extension of the Work Opportunity Tax Credit, including an expansion of qualifying beneficiaries of an electing small business trust. The extension counts for more than half the cost of the bill, at more than $2.5 billion.
Tax preparer penalties for understating liabilities on income tax returns would also be raised, while a new penalty on claims for refunds that are filed without any reasonable basis would raise an estimated $100 million.
The package also would increase the expensing limits of Section 179 of the tax code -- which allows businesses to deduct the cost of certain types of property on their taxes as an expense -- by $17,000, to a total of $125,000, through 2008, as well as extend the limits to businesses in the Gulf Opportunity Zone.
The bill also proposes:
- Extending the enhanced credit for low-income housing and treating certain qualified Gulf Opportunity Zone repairs or reconstruction as “qualified rehabilitation” for purposes of bond rules;
- Allowing an unincorporated business owned jointly by a married couple to file as a sole proprietorship, instead of a partnership;
- Modifying the “kiddie tax” -- the point at which a child's unearned income is taxed at the parent's rate -- to increase the age from under-18 to under-19, or under-24 for students (intended to prevent parents from shifting income to children to take advantage of lower tax rates); and,
- Doubling the period before which the Internal Revenue Service must stop imposing fees and penalties on taxpayers who have not been notified of a deficiency, from 18 months, to 36 months.
Two other revenue-raising provisions include eliminating the requirement that the IRS hold a collection due process hearing before issuing a levy on delinquent employment taxes and permanently extending IRS user fees.
