The most significant provision in the Emergency Economic Stabilization Act of 2008 for small businesses as well as individuals is the one-year alternative minimum tax (AMT) “patch,” says Tom Ochsenschlager, vice president of taxation at the American Institute of Certified Public Accountants (AICPA).
Alert: Owners of small businesses, such as pass-through entities like S corporations and limited liability companies (LLCs), often are subject to the tax. “This AMT patch will have very important budget impacts for small businesses,” he says.
The new law also reduces the standard for tax preparers to substantial authority, the same standard required of taxpayers, a second provision with wide application. Tax preparers previously had been held to a higher standard and been called upon to provide more information than clients, leading to a potential conflict of interest.
Ochsenschlager is “pleased that the extensions part of the bill passed as early as it did. Things will run more smoothly this year.” Even so, he adds, it will be a daunting task for the IRS to incorporate the more than 100 new provisions in the bill into their forms and computers and for the AICPA to revise the recently completed 2008 checklist that the association provides to members each year.
Millions of people will not fall into the AMT this year because of the fix. Since tax preparers took a conservative position and did not assume an AMT fix, you should ask your tax pro to recalculate your fourth-quarter estimated tax because you may have overpaid. And because there is no certainty that Congress will allow a similar fix for the AMT next year, your tax pro should look at all of the AMT implications. Many other tax credits and deductions were extended for two years in the new legislation, but not the AMT exemption levels.
The distribution of the AMT is very geographic, Ochsenschlager says. States like New York with concentrations of higher wage earners and higher state show more taxpayers who are subject to the AMT.
The importance of attaching the AMT “fix” to a bill that would be likely to pass in both houses of Congress cannot be underestimated, because a standoff between the “Blue Dog” Democrats in the House (those conservative and moderate Democrats who often vote for fiscally conservative measures) and Senate Republicans had made it doubtful the two houses would agree on a bill this year.
Advisory: Both groups are acting on principle, Ochsenschlager says, and both have assumed the “high ground,” which suggests the fight will go on.
— Adapted from AccountingWEB Inc., www.accountingweb.com.