How does the new small employer health insurance credit work?
In 2010, any company that pays at least 50 percent of its employees’ health insurance premiums is eligible for a 35 percent credit of premiums paid. This applies to employers with fewer than 25 full-time-equivalent employees whose average income is less than $50,000.
The credit begins to phase out when the employer has more than 10 full-time employees and phases out entirely for those with more than 25 employees. If the average wage is less than $25,000 per year, the employer is eligible for 100 percent of the credit. Starting at $25,000, the credit begins to phase out, and phases out entirely at $50,000.
The credit is able to offset any Alternative Minimum Tax (AMT), which is a good thing, since many taxpayers are subject to AMT.
The calculation is cumbersome, and there are a lot of nuances, but for small employers, it is definitely worth pursuing.
How is bonus depreciation impacted for the 2010 tax year?
Previously, bonus depreciation expired on Dec. 31, 2009, but Congress extended it until Dec. 31, 2010. Bonus depreciation allows businesses to write off the first 50 percent of the cost of the assets, and the remaining 50 percent to depreciate over the useful life of that asset. If you buy a new piece of equipment for half a million dollars, you can write off the first $250,000 and depreciate the remainder. At present, if you wait to purchase the new equipment in 2011, you would have to depreciate the entire cost over its useful life.
Why is now a good time to consider converting a traditional IRA to a Roth IRA?
For 2010, the government has allowed deferral of the income pickup for two years. If you convert in 2010, the first half of that income doesn’t have to be picked up until 2011, with the second half in 2012. If you wait until 2011 to convert, you have to pick up that income in the year you convert it.
However, there are a lot of factors to consider before converting to a Roth IRA. Each person’s personal situation is different, but everyone should consider current and future tax rates, current and future cash flow needs, ability to pay the conversion income tax, time horizon, estate planning objectives, and fair market value of the Traditional IRA account balance, just to name a few. Run the numbers and weigh all the factors. Don’t just assume that you shouldn’t do it, or that it looks great, without looking at all the factors.
What should business owners consider for 2011?
Certain S corporations that were previously C corporations that were considering selling assets should consider waiting until 2011. The general rule has been that if a corporation that was previously a C corporation converts to an S corporation, sells assets within the first 10 years, and is deemed to have built-in gains, it may have to pay the Built-in Gains tax (BIG tax). For 2009 and 2010 tax years, the recognition period was reduced to seven years. In 2011 only, that window for selling assets will decrease to five years. So if you’re selling assets subject to the BIG tax, you may want to wait until 2011.
Steve Magovac, CPA, MT, is an associate director in tax at SS&G. Reach him at [email protected] or (330) 668-9696.
