Client
358 NE Winchester • Roseburg, OR 97470
(541) 673-4423 • Fax (541) 673-0287
409 Pine St • Klamath Falls, OR 97601
(541) 882-4645 • Fax (541) 884-3081
www.wicksemmett.com
WINTER 2010
Small Business Jobs Act of 2010 restores some
familiar tax breaks and adds some new rules
If you are a small business owner who thought all the best tax breaks were behind
you, think again. The recently passed Small Business Jobs Act of 2010 restores
some familiar tax perks and adds a business stock will be
few new ones. The law was signed by reduced to zero for original
President Obama on September 27, issue stock purchased by the end of
2010. 2010. However, you still need to hold
the stock for five years to qualify.
Depreciation rules
The new law extends the first-year Start-up costs which means you
50% bonus depreciation rule that had If you start a new business this year, no longer have to meet
expired last year, and makes it retroac- you might score an added tax perk. strict recordkeeping re-
tive to include qualified new equipment The annual start-up cost deduction quirements for your business
purchases made any time in 2010. of $5,000 was raised to $10,000 for use of a cell phone. Businesses no
2010. The deduction is reduced dollar- longer have to include the personal
Congress also expanded the Section
for-dollar for any start-up expenses use of a business cell phone in an
179 business expensing provision to
exceeding $60,000. employee’s income.
allow a deduction of up to $500,000
for purchases of new or used equipment Waiting for the catch to all this
in 2010 and 2011. The previous limit Retirement conversion good tax news? Here it is. The new
was $250,000. What’s more, under the Roth IRAs are back in the news. law calls for even more information
old rule, the deduction was reduced You probably knew that a traditional return filing and increased penalties
for companies with annual equipment IRA could be converted into a Roth for failing to file such information.
purchases above $800,000. Now the in 2010 with the resulting taxable in- Beginning in 2011, rental property
threshold has been raised to $2 million. come spread equally in 2011 and 2012. owners will be required to report
Now you can do the same thing with payments of $600 or more made to
Credit carryback a 401(k), 403(b) or 457(b) plan, if goods and service providers.
The Small Business Jobs Act expands your retirement plan will allow it. The new small business tax law
the business tax credit carryback limita- gives business owners a lot to think
tion from one year to five for private Cell phones about and not much time to act. To
companies with gross receipts of no One very practical and welcome tax discuss ways to maximize the benefits
more than $50 million. And capital change is the removal of cell phones for your business, give our office a
gains tax on sales of qualified small from the “listed property” category, call today. ♦
YOUR HOME MORTGAGE
With mortgage interest rates at
historic lows, is it time to refinance?
Mortgage interest rates are at historic lows. According to the
Mortgage Bankers Association, the average interest rate for
30-year, fixed-rate mortgages dropped your home in the near future, refi- tion pro rata over the life of the new
to 4.25% in September, 2010, and the nancing may not save you money mortgage. To qualify, paying points
average rate for 15-year mortgages fell because it usually takes several years must be an established practice in
to 3.73%. These are the lowest rates in to recover refinancing costs through your area, and the amount paid
almost 50 years. a lower monthly payment. can’t be more than what is normally
If you’re currently paying mortgage Check for prepayment penalties. charged in the area.
interest at a higher rate, you may be Before you pay off your existing loan, If you’ve refinanced in the past,
tempted to refinance your existing check for an early payment penalty you could be eligible for another
mortgage, even if you already re- clause. Your note agreement will spell deduction. When you pay off a prior
financed once or twice before. But out the exact terms of the prepayment refinancing, you can immediately
should you do it? The decision may penalty, if any, or you can check with deduct any remaining points from
not be as simple as it first seems. your lender. A prepayment penalty the previous mortgage.
Comparing interest rates is not will lengthen your breakeven period. If you refinance to get a lower
enough. Here are some interest rate or shorter loan term and
Analyze the loan term. To save also to tap your equity to make im-
other factors to con-
interest, avoid stretching out your total provements to your home, points
sider before you
loan period when you refinance. Let’s attributable to the home improvement
refinance.
say you’ve been paying for ten years portion can be deducted immediately.
on a 30-year loan. If you take out a Any remaining points must be de-
new loan with a 30-year term, you will ducted pro rata over the loan’s term.
increase your total payoff period to • Other deductions. If the lender
40 years. Instead, consider making charges a prepayment penalty for
your new loan term coincide with paying off the previous loan early,
the remaining term of your old you can generally deduct the amount
Compare apples to apples. loan (in this example, 20 years). paid. Most other closing costs, such
Always request a good-faith cost Another alternative is to continue as appraisal or title insurance fees, are
estimate from any lender. This report making the same monthly payment not deductible. However, you should
should disclose all the fees and closing toward your new 30-year loan. If you bring your loan documents to your tax
costs, such as points, credit report fees, do that, you’ll pay off your loan in a appointment because there could be
inspection fees, private mortgage in- shorter period of time. This could save additional deductions.
surance, and appraisal fees. Use this you a substantial amount of interest. Other factors may also come into
information to evaluate competing Take taxes into account. In evalu- play. For instance, after you refinance,
loan proposals. ating a refinancing, don’t overlook the you may have to adjust your tax with-
Calculate your breakeven period. potential tax deductions. holding or estimated tax payments to
This is the length of time it takes you • Loan points. Most lenders charge reflect a lower interest deduction. And
to recover the costs a lender typically points, also known as a loan origina- lenders now require more detailed
charges to refinance your mortgage. tion fee, on home loans. If you itemize financial information and documenta-
To do this, divide your refinancing deductions on your tax return, you can tion. We can help you with the paper-
costs by your monthly savings (your generally deduct points paid on a refi- work and with making the best choices
current loan payment minus your new nancing, but not all in the first year. in your particular circumstances. ♦
loan payment). If you plan on selling Instead you must spread your deduc-
Page 2
YOUR FAMILY FINANCES
Talk finances with your elderly parents
One day you may find yourself taking care of an elderly parent who is in
declining physical or mental health. This can be stressful, both emotionally and
financially. On the financial side, there Financial records Estate planning
are steps you may want to take to pre- • Help your parents make a list of • Do they have a will or living trust?
pare for this situation. their financial assets, bank accounts, • What is the name of their attorney?
Talk to your parents about their investments, etc. • Discuss any special wishes for
financial affairs. Parents may be reluc- • Review the beneficiaries they have bequests; encourage your parents
tant to discuss their finances, but some- designated and how accounts are titled. to put them in writing.
one needs to know the names of their • Do they have a safe deposit box? • Have they set up directives for
lawyer and accountant. Someone needs Record the location and box number. medical care (living wills)?
to know where their important financial • Find the name of their accountant and • Have they set up a Power of Attorney
papers are located. Chances are that copies of tax returns. in case they become disabled?
much of the information will be in Physical assets
your parents’ heads, or scattered in vari- Don’t try to find all this information
• Locate mortgage records and the deed in one exhausting session. Instead, use
ous places around their house. Here’s to their house or other property.
a general overview of the topics you the list as a starting point for a series
• Locate vehicle titles. of conversations. Wherever possible,
might want to cover with your parents.
• Do they own any assets stored else- involve your parents in putting their
Vital statistics where? own affairs in order. You may find it’s
• Where are social security cards, Insurance a great opportunity to bond with your
driver’s licenses, and passports kept?
• Locate records for home, vehicle, parents in their golden years. ♦
• Where are marriage or divorce health, and life insurance.
records and family birth certificates?
• Where are military service records
and pension records? federal unemployment tax returns
and pay any tax due.
FEBRUARY
28 – Payers must file information re-
turns (such as 1099s) with the IRS.*
28 – Employers must send W-2 copies
Thank you for selecting our firm
JANUARY to the Social Security Administration.*
18 – Due date for the fourth
for your tax and accounting needs.
We appreciate the confidence you installment of 2010 individual MARCH
have shown in us, and we remain estimated tax. 1 – Farmers and fishermen who did
not make 2010 estimated tax payments
ready to assist you at any time. 31 – Employers must furnish W-2
must file 2010 tax returns and pay
Also, thank you for recommend- statements to employees. 1099
taxes in full.
ing us to your family, friends, and information statements must be
associates. Your referrals are appre- provided to payees. (1099B and 15 – Deadline for calendar-year cor-
ciated. consolidated statements must be porations to elect S status for 2011.
We wish you and yours a joyful provided by February 15.) 15 – 2010 calendar-year corporation
holiday season and a prosperous 31 – Employers must file 2010 income tax returns are due. ♦
2011.
* March 31 if filing electronically.
Page 3
Health care reform As the IRS gets tougher, here’s
brings 2011 changes
Time and Congress change things. Here
how to respond to an audit notice
are three tax law changes resulting from
health care reform that will take effect
January 1, 2011.
The number of IRS audits has doubled over the
1. Limited health plan reimbursements. past ten years. Coupled with the new informational
New rules apply to your withdrawals filing requirements for businesses,
from health savings accounts (HSAs), your chances of an IRS audit notifi-
Archer medical savings accounts (MSAs), cation are not insignificant. If the
health flexible spending arrangements IRS should come calling, here are
(FSAs), and health reimbursement some things to consider.
arrangements (HRAs). First, be aware that the IRS can
Beginning January 1, you’ll no longer contact you either by mail or phone.
be able to use funds in these accounts to The majority of audits take the form
pay for over-the-counter medicines or of a mailed notice requesting certain
drugs unless you have a prescription from information. These are often easily
your doctor. Insulin and certain medical handled, but don’t automatically as-
devices and supplies continue to qualify sume that you know what the IRS
for tax-free reimbursement. wants. The best first step is to con- answer any questions, even innocent-
Tip: Depending on your plan, you may tact our office and provide us with a sounding ones.
be able to request reimbursement in 2011 copy of the notice. It’s critical to Later on, the audit might result
for over-the-counter items purchased reply to the request by the deadline in a personal visit to your home or
by December 31, 2010. shown on the notice. For added business to allow the agent to gather
2. Higher penalties on non- safety, respond using certified mail. more information. These audits are
qualified distributions. However, the IRS might first referred to as field audits. You could
Amounts you withdraw notify you of an audit by phone. also be summoned to the agent’s
from your HSA or Archer Phone notifications are on the rise, office. In either case, never go it
MSA for “qualified” medical and, unfortunately, scam artists are alone. Keep us and/or your attorney
expenses such as prescription medi- taking advantage of this fact. The abreast of all developments. And
cine and drugs are tax- and penalty-free. call you receive might not be from never just ignore a notice – that
“Nonqualified” distributions are included the IRS at all, but instead from an could make matters much worse.
in income and are generally subject to a imposter hoping to gain access to Your best defense against an audit
penalty. your personal information. might be to take steps to minimize
Starting on January 1, the penalty for If it is truly the IRS on the line, your risks. Maintain complete and
nonqualified distributions from an HSA be aware that the agent will care- accurate records. Save important tax
or Archer MSA is 20% of the amount fully document every word you say receipts for seven years. And stay
you withdraw. and perhaps use those words against familiar with the latest tax rules.
3. Optional health coverage reporting. you. To protect yourself, simply take The odds of an IRS audit might
Reporting the value of health benefits down the agent’s name and contact be rising, but knowing what to do,
you provide to employees is optional information, and tell the agent that and who to contact first can make the
for the year ending December 31, 2011, your professional representative will experience less stressful. Our office
instead of mandatory. be following up with him or her. stands ready to assist you should the
You can choose to report the premiums Don’t engage in idle chitchat or IRS ever call your number. ♦
paid for benefits such as health insurance,
prescription drug coverage, and dental and CLIENT UPDATE
vision plans on Forms W-2 for 2011. The
This newsletter is issued quarterly to provide you with an informative sum-
reported value is not taxable income to mary of current business, financial, and tax planning news and opportunities.
employees. Do not apply this general information to your specific situation without addi-
Times keep changing, and so do the tional details. Be aware that the tax laws contain varying effective dates and
rules. Call for up-to-date information numerous limitations and exceptions that cannot be summarized easily. For
about new tax laws affecting you and details and guidance in applying the tax rules to your individual circum-
your business. ♦ stances, please contact us.
Page 4 Winter 2010