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Tax Tips Newsletter
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October 2010 - Vol 5, Issue 9
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Greetings!
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Whew, another extension deadline has passed. Many thanks to my fabulous staff for a job well done. I could not imagine what I would do without such excellent support.

For California businesses that file payroll tax returns, there will be new quarterly forms beginning with the first quarter 2011. For more information, go to the EDD website.

The Small Business Jobs Act has some provisions that you or your business may find very appealing. See the article below for suggestions on how to reduce your tax bill for 2010. In addition, there are some tax breaks that may expire at the end of the year if Congress does not vote to extend them. A list of some of those is in the following article.

All of this makes year-end tax planning a little more challenging, but I can give you a good idea of what the tax picture looks like under the current law, and then update for what the new law will be once Congress decides what they want to do. Please let me know if you are interested in a year-end projection.

Happy Businessman
The "Small Business Jobs Act of 2010," signed into law on September 27, creates several tax-saving opportunities for businesses. Here's a summary of the key tax breaks.

* SECTION 179 DEDUCTION: The new law doubles the maximum amount that can be deducted for business equipment purchases to $500,000 for 2010 and 2011. Also, the dollar threshold at which the maximum deduction is phased out is increased from $800,000 to $2 million.

* BONUS DEPRECIATION: The new law revives the 50% bonus depreciation for qualified property placed in service in 2010 (through 2011 for certain property).

* START-UP EXPENSES: For 2010, the maximum deduction for qualified costs of starting a business is increased to $10,000, with a $60,000 phase-out threshold.

* QUALIFIED SMALL BUSINESS STOCK: Investors in "qualified small business stock" may be able to exclude 100% of the gain from the stock's sale if it is held at least five years (for acquisitions from September 27, 2010, through December 31,2010).

* BUSINESS CREDITS: Normally, general business credits can't offset alternative minimum tax (AMT) liability. The new law removes this restriction for an "eligible small business" and permits carrybacks of general business credits for five years.

* HEALTH INSURANCE: For 2010 only, self-employed individuals can deduct health insurance costs from their self-employment income in computing self-employment tax.

* CELL PHONES: The new law removes strict substantiation requirements for cell phones and similar devices used in business and treats employee use as a tax-free fringe benefit.

* ROTH ACCOUNTS: Effective September 27, 2010, participants in 401(k), 403(b), and 457(b) plans can roll over funds to a Roth account. For rollovers in 2010, the resulting taxable income can be divided between 2011 and 2012.
Tax Coffer
The "2001 Tax Act" is set to expire at the end of this year, bringing back pre-2001 tax rates and rules. While the current discussions focus on the income tax rates that will rise if the law is allowed to expire, there are dozens of other major changes that will sunset too.

Here's a quick overview of what 2011 will bring unless Congress intervenes:

* The limitation on itemized deductions based on income will be reinstated in full.

* The phaseout of the deduction for personal exemptions for higher-income taxpayers will be reinstated in full.

* Married couples filing a joint return will not be entitled to twice the standard deduction amount allowed for single taxpayers. Nor will couples get the 15% tax rate on twice the amount of income as single taxpayers get. The marriage penalty, in other words, is back to pre-2001 levels.

* The child tax credit and the dependent care credit will revert to pre-2001 levels.

* The maximum rate for capital gains will revert to 20%, and dividends will be taxed at ordinary income rates as high as 39.6%.

* Among the changes to education tax breaks, the annual contribution to Coverdell education savings accounts will revert to $500.

* The estate tax will return with a maximum rate of 55% and a exclusion amount of $1 million.

Your tax planning, as challenging as it already is, should take these potential changes into account. For guidance in your year-end planning, give me a call.
Cornucopia
The Tax Tip of the Week deals with tax benefits of incorporating. Please note that if you are interested in incorporating in the State of California, you want it to start the process, but not do it until the last 2 weeks of December. Otherwise the Franchise Tax Board will impose a minimum $800 tax for 2010.

The Business Tip of the Month stresses the importance of establishing good credit for your business.

The Financial Tip of the Month. Are you dealing with financial stress? Is it affecting your health and quality of life? Here's some tips to relieve some of the pressure.

The Fraud Alert: Beware of charity scams. Know who you're donating your hard earned money to. Here's some tips to check on the charity before you write that check.

Photos © Bigstockphotos.com, istockphoto.com, Felix Orona

Sincerely,
Linda Heineman
Linda L. Heineman, CPA

phone: 626-577-0979
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