Small Business Jobs Act of 2010

After months of negotiations and delays, Congress passed the Small Business Jobs Act of 2010. The new law is designed to increase lending to small businesses and create incentives for small business investment. In addition to a targeted $30 billion small business lending fund, the Act:

Extends bonus depreciation
Extends and doubles Code §179 expensing,
Provides for 100% gain exclusion for qualified small business stock,
Relaxes the S corp built-in gain conversion rules, (5 yrs instead of 7)
Allows five-year carrybacks of the general business credit for qualified taxpayers,
Removes cell phones from the lsted property rules,
Enhances the deduction for start-up expenses, and
Allows a self-employment income tax deduction for 2010 health care expenses.

We are encouraging our clients to take advantage of the accelerated depreciation rules by purchasing equipment before year end if there are significant profits in the business. The remaining items are up to us to review and exploit for you. The NEW rule allowing self-employed to deduct health care expenses from self-employment income is a big step in favor of self-employeds. It can cut your self-employment tax by between 2.9% and 15.3% of your health care costs, depending on your profits.

ROTH CONVERSION
Taxpayers whose income has been too high to be allowed to convert regular IRAs to Roth IRAs were allowed a reprieve in 2010. In 2010 the income limits for converting to a Roth were removed. However, time is running out. The deadline for conversion is December 31, 2010. Although it means paying tax now that could be deferred until later, the long-term benefits of converting to a Roth could significantly outweigh the short-term tax bite.

If you are interested in converting to a Roth and would like for Bates-Carter to run a few quick calculations for you, give us a call or send an email.

We'll need to know:

Your current age
Age when the income (distributions from the IRA) should start (retirement age)
Number of years you expect to be in retirement
Expected return on invested IRA funds pre-retirement
Expected return on investment post-retirement
Income tax bracket pre-retirement (we have this)
Income tax bracket post-retirement
Amount to be converted to a Roth
Whether taxes will be paid from the IRA or other funds (other is better)

There is an option to delay the tax until 2011 and 2012. We do not recommend this given the assumption that tax rates will be higher in those years.

UPDATE ON EXTENDING BUSH TAX CUTS
Internal divisions have led Senate Democrats to back off from holding a vote on extending the 2001 and 2003 tax cuts for the middle-class before the upcoming congressional recess. The delay makes it more likely that a vote will be held during a lame-duck session following the November midterm elections.

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