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October 25, 2010

October 2010 Tax Tip

The Small Business Jobs Act

On September 27, President Obama signed The Small Business Jobs Act signed into law, potentially impacting 27.5 million small businesses and providing the savvy business owner an opportunity to adjust their tax situation for 2010. The administration’s philosophy is to stimulate capital investments and certain other actions by business to create new jobs, though no direct incentives for hiring were included in the bill.

Though the bill creates up to $12 billion in business tax breaks, it should not be considered Congress’ final word on taxes for your business in 2010. Dozens of tax breaks that expired at the end of 2009 may still be extended – retroactively – for 2010. Best advice? Contact your friendly CPA who can advise you on how to best benefit from existing and potential tax breaks, as well as how to properly tax plan for 2010 and 2011. Until you make that call, though, here are some key provisions from the Small Business Jobs Act to consider:

* For tax year 2010 only, the deduction for business start-up expenditures increases from $5,000 to $10,000 and phases out completely for expenses exceeding $70,000.

* The health insurance premiums are deductible for purposes of calculating self-employment tax. For example, if a business owner has $20,000 in income subject to self-employment tax and spent $5,000 on individual health care premiums, only $15,000 is now subjected to self-employment tax.

* Bonus depreciation is extended for 2010, allowing businesses to immediately deduct 50 percent of the cost of qualifying property such as new furniture, computers or equipment. For example, if a laptop costs $1,000 and is five-year property, the amount of bonus depreciation allowed is $500 (50% x $1,000) and the remaining $500 of the cost of the laptop is depreciable under the rules applicable to five-year property.

* Effective this calendar year, cell phones are no longer classified as listed property and can now be deducted as business expenses or depreciated under the regular rules for business property. This will significantly reduce the phone usage record keeping requirements and in most cases, employers will no longer be required to include the value of personal use of a company cell phone in employee wages.

Individual Provisions to Consider:
* Starting Sept. 27, rollovers are allowed from 401(k), 403(b), and governmental 457(b) plans to designated Roth IRAs, depending on employment status and age.

* Governmental 457(b) plans may allow contributions to designated Roth IRAs, starting in calendar year 2011, and any contributions would be treated as elective deferrals, but would not be excluded from gross income.

For more information on the Small Business Jobs Act and tax planning, contact Rita Schooley at Wendroff & Associates, CPA at 703-553-1099.

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