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Washington Watch - January 5, 2011

Republicans Take Further Steps To Repeal Health Law

Republicans are in the process of introducing two bills to "repeal and replace" both the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (health reform laws).

Several House committees have been instructed to start work on new language for replacement health reform bills. The House Committee on Rules has already posted a repeal of the laws.

The second bill will be composed of recommendations from four House committees (Education and Workforce, Energy and Commerce, Judiciary and Ways and Means) that include popular provisions in the current health law. These include a market-based coverage system, coverage for those with pre-existing conditions, reexamining the medical liability system and increasing the number of Americans who are insured, all to be completed without raising taxes or affecting Medicare.

The committees will also work to prohibit taxpayer-funded abortions, provide states with more flexibility in administering Medicaid and reduce spending.

The process is considered largely symbolic, since the Democrats still have control of the Senate and have vowed to combat repeal and reform measures.

Tax Cuts Officially Extended By Obama

President Obama signed into law H.R. 4853, the vehicle for the White House-Republican tax compromise.  

The bill extends the following soon to expire or expired tax provisions:

  • Income Tax Rates – The bill would extend current income tax rates for all individuals for two years and also provide alternative minimum tax relief.
  • Estate Taxes – The deal would re-instate estate taxes for two years by imposing a 35% rate on estates worth more than $5 million for individuals and $10 million for couples.
  • Business Expensing – Businesses will be able to expense 100% of their investments in 2011 and also receive a 50% bonus depreciation in 2012.
  • Child Tax Credit -- The existing $1,000 child tax credit will be extended for two years with the $3,000 refundability threshold established in the Recovery Act.
  • American Opportunity Tax Credit – The agreement would extend for two years a partially refundable tax credit of up to $2,500 to cover the cost of college tuition.
  • Capital Gains Tax Rate - The compromise maintains the current rate of 15% for capital gains and dividends.
  • R&D Tax Credit – The deal would extend the existing Research and Development Tax Credit for two years.
  • Payroll Tax Cuts – This agreement will also include a 2% employee-side payroll tax cut. This will not impact the payroll taxes paid by employers.

SBA To Offer Lower-Dollar 7(a) Loans

The NASE champions the idea that small infusions of capital can make a big difference to the self-employed and micro-businesses. Since 2006, the Association has awarded part of over $470,000 in grants to qualified companies. Read more about the NASE Business Development Grant program here.

With small business owners and entrepreneurs in traditionally underserved communities continuing to face challenges accessing capital, the Small Business Administration (SBA) has announced new initiatives aimed at increasing SBA-backed loans to small businesses in these markets.

SBA and U.S. Department of Commerce studies have shown the importance of lower-dollar loans to small business formation and growth in underserved communities. With that in mind, the Small Loan Advantage are aimed at increasing the number of lower-dollar SBA 7(a) loans going to small businesses and entrepreneurs in underserved communities. The agency’s most popular loan product, 7(a) government-guaranteed loans can be used for variety of general business purposes, including working capital and purchases of equipment and real estate.

In conjunction with the implementation of new Advantage loan initiatives by March 15, the agency will end its existing Community Express pilot loan program on April 30.

Late Tax Breaks To Affect Some Filers

For most taxpayers, the 2011 tax filing season starts on schedule. However, tax law changes enacted by Congress and signed by President Obama in December mean some people need to wait until mid- to late February to file their tax returns in order to give the IRS time to reprogram its processing systems.

Those who need to wait to file include:

  • Taxpayers Claiming Itemized Deductions on Schedule A. Itemized deductions include mortgage interest, charitable deductions, medical and dental expenses as well as state and local taxes. In addition, itemized deductions include the state and local general sales tax deduction that was also extended and which primarily benefits people living in areas without state and local income taxes. Because of late Congressional action to enact tax law changes, anyone who itemizes and files a Schedule A will need to wait to file until mid- to late February.
  • Taxpayers Claiming the Higher Education Tuition and Fees Deduction. This deduction for parents and students – covering up to $4,000 of tuition and fees paid to a post-secondary institution – is claimed on Form 8917. However, the IRS emphasized that there will be no delays for millions of parents and students who claim other education credits, including the American Opportunity Tax Credit extended last month and the Lifetime Learning Credit.
  • Taxpayers Claiming the Educator Expense Deduction. This deduction is for kindergarten through grade 12 educators with out-of-pocket classroom expenses of up to $250. The educator expense deduction is claimed on Form 1040, Line 23 and Form 1040A, Line 16.

For additional tax help visit the NASE's Tax Resource Center, including tax calculators, a Schedule C planning tool, IRS Forms and more.

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