2010 tax update given to Home Improvement Contractors Council (HICC). November 2010.

1. M I C H A E L B A T S O N , C P A
S H A R P T H U N S T R O M & B A T S O N
L A M E S A , C A
w w w . c p a o f s a n d i e g o . c o m
6 1 9 4 6 3 - 5 5 4 8
Tax Traps and Tips for the
Small Business Owner
The contents of this presentation are for informational purposes only and is not intended to substitute for obtaining
accounting, tax or financial advice from a professional accountant. Material from this presentation does NOT constitute
an accountant-client relationship. Any U.S. federal tax advice contained in this presentation is not intended to be used
for the purpose of avoiding penalties under U.S. federal tax law. While we use reasonable efforts to furnish accurate and
up-to-date information, we do not warrant that any information contained in or made available through this
presentation is accurate, complete, reliable, current or error-free.

2. Health Care Bill
 Actually two pieces of legislation
 Patient Protection and Affordable Care Act (3/23/10)
 Health Care and Education Reconciliation Act (3/20/10)
 Phases in from 2010 to 2014
 More than 2500 pages of legislation
 111 new bureaucracies created by these bills!!

3. Health Care Bill - 2010
 New credit for small businesses to cover cost of
health insurance, must pay 50% of cost (insurance
NOT mandatory for small businesses)
 10% tanning tax
 Coverage for pre-existing conditions for kids
 Children covered by parents’ insurance to age 26
 No lifetime limits on coverage
 “Donut Hole” rebates for Part D recipients
 Prohibits rescission of coverage by insurance
companies

4. Health Care Bill – 2011 & 2012
 W2 Change – must show benefit of health insurance
coverage (not box 1)
 “Donut Hole” goes from rebates to discounts on
prescription medications
 MSA and HSA reimbursements must be for
prescriptions only, no OTC meds or aids
 For 2012, 1099Misc law (House and Senate want
change on this)

5. Health Care Bill - 2013
 Schedule A, medical expense deduction floor jumps
from 7.5% of AGI to 10%
 Flexible spending accounts capped at $2,500
 Taxpayers earned income > $250K pay 0.9%
Medicare tax, additional 3.8% tax on investment
income (dividends, interest, capital gains, rents,
annuities and royalties)
 NOTE – tax increase in effect AFTER elections in
2012

6. Health Care Bill – 2014
 Employers with > 50 employees MUST offer
appropriate health insurance or pay $2,000 penalty
per employee
 Individuals who aren’t covered by employer health
insurance must buy or pay $695 maximum penalty
 No denial for pre-existing conditions for anyone
 Medicaid (Medical) coverage expanded, fed to cover
increase
 Health insurance “exchanges” must be established in
each state

7. Health Care Bill - 2018
 “Cadillac Tax” on plans offered by companies that
have annual premiums of > $10,200 individual
coverage or > $27,500 family coverage
 40% tax on excess of baseline coverage

8. Health Care Credit
 35% credit on health insurance cost (2010 to 2013)
 50% for 2014 and beyond
 Full credit up to 10 employees whose annual wages <
$25,000
 Two phase outs, 1) > $25,000 to $50,000 annual
wages, 2) 11 to 25 employees

9. New Hire Credit
 For those hired after 2/3/10 and before 1/1/11
 Credit is for employer’s share of OASDI (Social
Security or 6.2%)
 Taken on form 941
 Max credit $6,621.60 (based on $106,800 limit)

10. New Hire Credit – Who qualifies?
 Must be someone who hasn’t worked more than 40
hours during 60-day period ending on hire date
(not someone fully unemployed)
 Must complete form W11
 Can’t fire qualified employee just to hire someone
new to take the credit
 No related employees except spouse!
 Can amend 941 forms for 2nd and 3rd quarter to
claim credit

11. Retained Worker Credit
 Up to $1,000 credit for employees retained for 52
consecutive weeks (hired after March 18, 2010)
 Last 26 weeks of employment at least 80% of first 26
weeks’ wages
 Lesser of $1,000 or 6.2% of wages ($16,129)
 Taken on 2011 tax return (not payroll returns)

12. Bush Tax Cuts????
 Tax laws revert back to 2001, tax brackets, credits,
estate tax unified credit
 Tax Rates. All rates will increase. Highest jumps
from 35% to 39.6%
 Capital Gains. The 0% long term capital gains rate
will go away. Capital gains rates will go up to 10%
for lower tax brackets and from 15% to 20% for
higher tax brackets.
 529 Plans. 529 Plan withdrawals will not be
allowed tax free for computers or Internet access.

13. Bush Tax Cuts????
 Business Taxes. In addition, various business
taxes will change including the payroll tax credit and
section 179 expense deduction.
 Estate Taxes. Without any action, the estate tax
(or death tax as some like to call it) exemption will go
back to a $1 million exemption.
 Other Tax Credits. The tuition credits will be
limited, as will the earned income tax credit.
 Mortgage Premiums. You will no longer be able
to deduct mortgage insurance premiums after
12/31/10.

14. Bush Tax Cuts????
 Qualified Dividends. To be taxed as ordinary
income, with the new higher rates. Right now the
tax rates are 10% and 15%.
 Child Tax Credit. The child tax credit will return
to $500 from the current $1,000 per child. In
addition, it may not be refundable for some
taxpayers

15. What do I do to reduce taxes?
 Accelerate income
 Defer deductions
 Retirement and pension planning
 Hire your spouse/children
 Write your congressman and senator

16. Business Entity Selection
 Typical entities include Sole Proprietorship,
Corporation, S Corporation, LLC’s and Partnerships
 Which is best?
 Which is worst?
 Which is under scrutiny?

17. IRS Audits
 Mileage deductions – Keep a log!
 Meals & Entertainment – Keep the receipts!
 1099Misc – request completed form W9 and then do
them!
 Distributions vs. wages
 Income/deposits – keep good records!
 Reasonable compensation – How much would I pay
someone else to do my job?

18. For Sale - 2004 Cobalt 220
 6.2 Liter, 320 HP Mercruiser, 250 hours
 Dual battery system w/ switch, fire suppression sys.
 50 gallon tank – 140 mile + range!
 Galvanized, tandem trailer, disc brakes, swing-away
tongue
 Carries 12 passengers, open bow, swim step/ladder
 Wake tower w/light, speakers and 12” subwoofer
 Bimini top, big cooler, tons of stowage, matching
bumpers, dock lines, tonneau cover and carpet
 $27,500 OBO! What a deal!!!!!

19. M I C H A E L B A T S O N , C P A
S H A R P T H U N S T R O M & B A T S O N
L A M E S A , C A
w w w . c p a o f s a n d i e g o . c o m
6 1 9 4 6 3 - 5 5 4 8
Tax Traps and Tips for the
Small Business Owner
The contents of this presentation are for informational purposes only and is not intended to substitute for obtaining
accounting, tax or financial advice from a professional accountant. Material from this presentation does NOT constitute
an accountant-client relationship. Any U.S. federal tax advice contained in this presentation is not intended to be used
for the purpose of avoiding penalties under U.S. federal tax law. While we use reasonable efforts to furnish accurate and
up-to-date information, we do not warrant that any information contained in or made available through this
presentation is accurate, complete, reliable, current or error-free.