Tax Uncertainty Haunts Small Businesses

As 2010 comes to a close, taxes are a looming concern for many small businesses, including indepen­dent agencies, as huge changes come into effect at midnight on Dec. 31, 2010. The 2001 and 2003 tax cuts are currently set to expire at the end of the year, potentially setting off a wave of increases in marginal tax rates, capital gains and dividends, as well as a huge hike in the estate tax. In addition, the new health care law includes onerous provisions that will require businesses to file more forms with the IRS to increase tax code compliance.

2001/2003 Tax Cuts. Tax cuts passed by Congress with bipartisan support and signed into law in 2001 and 2003 are set to expire at the end of this year increasing the tax rates for individual taxpayers and raising the maximum marginal rate to nearly 40%.

Small businesses that tend to pay taxes at the individual rate will be hit the hardest. Unless Congress passes legislation to prevent these tax increases and President Barack Obama signs the bill into law by the end of the year, many Big “I” members organized as Subchapter S corporations or sole proprietorships will be greatly affected. The Big “I” and many other organizations are working together to urge Congress to act now.

Estate Taxes. Currently, the estate tax is 0% for 2010 but is scheduled to return in 2011 with a 55% top rate and a $1 million exemption. The Big “I” and other small business representatives argue that the estate tax disproportionately affects small and family-owned businesses. Although many of these businesses are asset-rich, they lack liquidity to pay estate taxes when an owner passes away. Evidence shows that the estate tax hinders the perpetuation of family-owned businesses because survivors are often forced to sell the busi­ness to pay taxes, killing jobs in the process.

The Big “I” and its coalition partners have voiced their support for bipartisan efforts by Senators Blanche Lincoln (D-Ark.) and Jon Kyl (R-Ariz.) that would reduce the top rate to 35% and increase the exemption to $5 million for individual filers and $10 million for dual filers. The association continues to push Congress to act this year.

New IRS Form 1099 Requirements. Under the new health care law, starting in 2012 all businesses will have to file an IRS Form 1099 for any business-to-business transaction for goods or services over $600 (cumu­lative throughout the tax year). Businesses will have to track and record the name, address and taxpayer identification number of each vendor to file a Form 1099 with the IRS at the end of the tax year and send a copy to each vendor.

The Big “I” opposes this mandate citing the substantial resources that the new record keeping, accounting and compliance procedures will drain. The additional paperwork will prevent investment in job growth and business expansion.

Many argue that this provision is unrelated to health care and was only added in an attempt to partially offset the cost of the bill.

The provision is expected to increase the cost of doing business for entities of all sizes but will hit small businesses hardest. Additionally, the increased costs at the IRS associated with enforcing this mandate will make any net revenue collected by the federal government negligible.

Last month, the Senate voted down dueling proposals to repeal or scale back the new requirements. Another dimension to the debate is how to replace the $17 billion in revenue the reporting requirement was estimated to generate. Politically contentious revenue offsets combined with the debate over whether to repeal the reporting requirement or modify it brought down efforts in the Senate. However, the issue contin­ues to gain the attention of lawmakers, and members of both political parties have expressed their desire to deal with the problem. The battle is far from over and the Big “I” will continue to fight for full repeal before the provision takes effect in 2012.

Margarita Tapia (margarita.tapia@iiaba.net) is Big “I” director of public affairs.

InsurPac Stays Busy as Election Day Approaches

The 2010 election cycle is in full swing, and the Big “I” is engaged with the power and clout of InsurPac, the political action committee for independent agents. With receipts already exceeding $1.7 million this election cycle, it remains the largest property-casualty PAC in the nation.

In disbursing contributions, InsurPac does not look at party affiliation but supports U.S. congressmen, senators and candidates for federal office who have been advocates and supporters of the independent agency system. InsurPac is the only agent/broker political action committee that distributes 100% of its voluntary contributions to federal campaigns and, as a result, has an impressive bipartisan track record in Congress and on the campaign trail.

In the last national election (2008), 92% of InsurPac-supported candidates won with 222 victories of the 241 races supported. InsurPac has already supported more campaigns this election and eagerly anticipates the November results.
—M.T.