Small Business Jobs Act

On September 27, 2010, President Obama signed the Small Business Jobs Act of 2010. Despite the name, the legislation impacts a broad array of taxpayers. Below is a summary of the some of the key points of the legislation:

· Employees are now exempt from keeping a log of personal use of company cell phones. The old recordkeeping rule is one that was largely ignored, but was enacted to capture tax revenue for personal use of business related items that were often abused, such as automobiles.

· Employees of companies with 401(k) retirement plans may now transfer balances to Roth 401(k) plans. Roth 401(k) plans allow tax-free withdrawals (upon meeting certain conditions), similar to Roth IRAs, and have additional benefits. People who transfer balances in 2010 can defer their conversion related income tax liability into 2011 and 2012. Employer plans must allow for Roth accounts, so those interested must contact their benefits specialist or workplace financial advisor.

· Self employed individuals may now deduct premiums paid for health insurance to offset self employment tax.

· Savers holding annuities outside of a retirement plan, also called nonqualified annuities, may draw income from part of the annuity while allowing the rest of the annuity to grow. This allows savers to begin drawing income but maintain balances in their contracts.

· Section 179 depreciation has been expanded for 2010 and 2011, allowing businesses to immediately deduct up to $500,000 of the cost of new or used capital equipment rather than stretching deductions over many years. Up to $250,000 of the $500,000 may be used for improvements to properties that are leased. This is meant to target restaurants and retail shops and help those in the building trades.

· Bonus depreciation has been extended and is open to businesses of all size. Businesses may write-off up to half of the remaining cost of qualified new equipment in 2010 (bonuses are available in tax year 2011 for certain equipment, such as aircraft and other long-production period property). Bonus depreciation may be used by companies losing money who wish to obtain a refund, while Section 179 deductions help only to reduce taxable income.

· Beginning in 2011, landlords must prepare 1099 information forms if they pay a service provider $600 or more in a year. The forms must be given to both the workers and the IRS, which means that service providers must be legal residents with Social Security numbers or other valid tax ID numbers.

Prior to the end of 2010, there may be additional changes to tax law. Before making any decisions regarding large purchases or your retirement savings, please consult your tax and financial advisors.

Sources: Wall Street Journal, 9.25.2010, wsj.com; Small Business Administration 9.27.2010, sba.gov/jobsact