QUOTE OF THE WEEK

"Notice that the stiffest tree is most

easily cracked, while the bamboo or

willow survives by bending with the wind."
--Bruce Lee

WASHINGTON REFORMS HEALTH CARE AND TAXES

Sunday's night's health care bill will go down as one of those once-in-a-generation accomplishments. I'm not here to debate the merits of the bill - historians will still be doing that decades from now. But it's important to point out some important tax changes included in the bill and the companion "reconciliation" bill now before the Senate. (Just how important are they? Well, the Congressional Budget Office says the IRS will need $10 billion and 17,000 new employees to enforce its share of the new rules!)

Here are some of the key tax provisions:

• Starting immediately, certain small businesses with less than 10 employees will get a 35% credit for the cost of providing employee health benefits.
• Starting in 2011, employers will have to report the value of health benefits on Form W2.
• The penalty tax for Health Savings Account distributions not used for health care expenses doubles from 10% to 20%. This will discourage using HSAs for supplemental retirement savings.
• Starting in 2013, the 7.5% floor for deducting medical and dental expenses climbs to 10% (unless you or your spouse are 65 or older, in which case it remains at 7.5% until 2016).
• Healthcare flexible spending account contributions are capped at $2,500 per year.
• Starting in 2014, businesses with more than 50 employees will have to offer health benefits or pay a penalty of $750/employee.

The reconciliation bill includes one more unwelcome surprise.

• Currently, the Medicare tax is limited to 2.9% of earned income (earned income is income from wages and self employment like business, partnership and LLC income). The reconciliation bill imposes an additional Medicare tax of 0.9% on earned income above $200,000 (individuals) or $250,000 (families).
• It also adds a 3.8% "Unearned Income Medicare Contribution" on investment income - specifically, interest, dividends, annuities, royalties, capital gains, and rents - for taxpayers with Adjusted Gross Income above those same thresholds. Those new levies would take effect in 2013.

The complete bill is 1,018 pages, so it's going to take some time to analyze. But we'll be paying close attention as details become available. In the meantime, email us with any questions.

Larry Kopsa CPA

EQUIPMENT WRITE OFF BACK TO $250,000 FOR 2010 BUT NO 50% BONUS DEPRECIATION

Background
In the past decade, Congress has frequently promoted business spending by increasing the Section 179 expensing opportunity or by providing a first-year bonus depreciation opportunity for capital expenditures. Both of those enhanced deductions expired at the end of 2009. For purchases after 2009, the 50% first-year bonus no longer applies. The Section 179 expensing limit was scheduled to drop to $134,000 for tax years beginning in 2010.

Hiring Incentives to Restore Employment Act of 2010
On Thursday, March 18, 2010, the President signed into law the HIRE Act (P.L. 111-47), to provide incentives for job creation. Among the direct job incentives is a provision to expand the Section 179 expensing limit to $250,000. The higher limit applies for years beginning in 2010.

The qualified purchases phase-out level for 2010 was scheduled to range from $530,000 to $664,000. Under the new law, the phase-out range is raised to $800,000 to $1,050,000.

No Extension of 50% Bonus Depreciation
The 50% bonus depreciation provision that was effective for new assets placed in service during the period January 1, 2008 through December 31, 2009, was NOT extended by the HIRE Act, nor is it included in either the House or Senate versions of the Extender Bill currently making its way through Congress. Unless added to the Extender Bill prior to its finalization, 50% bonus depreciation is inapplicable for assets purchased on or after January 1, 2010.

Summary
This represents the third consecutive year at the $250,000 expensing level. With businesses looking at tighter margins in 2010, we may see fewer taxpayers needing the additional deductions. Yet, it is good to have this weapon in the arsenal for planning 2010 income. As always, it is primarily about managing overall income level and marginal tax rates.

Please email if you have any questions.

Larry Kopsa CPA

TWO NEW TAX BENEFITS AID EMPLOYERS WHO HIRE AND RETAIN UNEMPLOYED WORKERS

Employers who hire unemployed workers this year may qualify for a 6.2-percent payroll tax incentive. Check out the following IRS link to read the whole story.

http://www.irs.gov/newsroom/article/0,,id=220326,00.html

OPINION: 'GOVERNMENT EYEING CONFISCATION OF 401(K)s AND IRAs?'

I have seen this topic several times in the last week or so. At first I thought it was just one of the radical ideas that was out there to scare people about “big government.” After I saw this several times I did some research and it seems to be a legitimate proposal that is being floated. The attached is a good summary.

Larry Kopsa CPA

(Investors Business Daily) -- In a guest editorial posted at Investors.com, former House Speaker Newt Gingrich and think tank director Peter Ferrara write that investors who "did the responsible thing" by saving in their IRAs or 401(k)'s may find that "Washington is developing plans for their retirement savings." They write that "BusinessWeek reports that the Treasury and Labor departments are asking for public comment on 'the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams.'" The op-ed states: "In plain English, the idea is for the government to take your retirement savings in return for a promise to pay you some monthly benefit in your retirement years." This would be done "to pay for their unprecedented trillion-dollar budget deficits, leaving nothing to back up their political promises," write Gingrich and Ferrara. Hearings on such a proposal were "held last fall by House Education and Labor Committee Chairman George Miller, D-Calif., and Rep. Jim McDermott, D-Wash., of the Ways and Means Committee focusing on 'redirecting (IRA and 401k) tax breaks to a new system of guaranteed retirement accounts to which all workers would be obliged to contribute,'" according to the op-ed, which can be read in its entirety at http://www.investors.com/NewsAndAnalysis/Article.aspx?id=521423>

FEDERAL PAY AHEAD OF PRIVATE INDUSTRY

I remember when I was young adult trying to decide on my career path that my college adviser said that if I was to go to work for the government I would have a lower wage but good benefits and a good retirement plan. I opted to go the private route and at first had a higher salary than my peers that went to work for Uncle Sam.

Now, according to an article in USA Today, that has all changed. The average salary of $67,691 plus $40,487 in benefits to the government workers for occupations that exit both in the private and public sector compares to $60,046 of salary plus $9,882 of benefits for private sector workers. They state that in 8 of 10 occupations, federal employees earn a higher average salary.

http://www.usatoday.com/news/nation/2010-03-04-federal-pay_N.htm>

QUOTE OF THE WEEK

“The small act of paying

attention can take

you a long way.”

Keanu Reeves