Tax Planning & Compliance Blog

2010: The Right Time to Convert to a Roth?

2010 offers a unique opportunity for high-income individuals to convert their 401k to a Roth IRA.

As you may know, Distributions from a traditional IRA are generally taxed at ordinary income rates currently reaching as high as 35%. (Future tax rates are currently scheduled to rise.) The taxable portion includes earnings within the tax-deferred account and amounts attributable to deductible contributions.

Conversely, "qualified distributions" from a Roth IRA are completely tax-free. A qualified distribution is one from a Roth in existence for at least five years that is made after you have reached age 59½; upon death or disability; or to pay for first-time homebuyer expenses (up to a lifetime limit of $10,000).

In effect, a conversion of assets from a traditional IRA to a Roth is treated as a withdrawal for tax purposes. So, you are generally required to pay the usual amount of tax when you convert.

But the current tax cost may be worth it in exchange for future tax-free distributions. Furthermore, unlike a traditional IRA, you don't have to take minimum distributions from a Roth after age 70½.

Note: Prior to this year, a conversion was not allowed in a year in which your modified adjusted gross income exceeded $100,000. However, beginning in 2010, this restriction has been removed. Therefore, high-income individuals may be eligible to convert to a Roth for the first time. Another incentive: For a conversion in 2010-and 2010 only-you can choose to have the taxable income from the conversion split evenly over the following two years-2011 and 2012.

To learn more about the potential benefits of conversion, contact us at 440-449-6800.

Ten Last-minute Tax Moves

Although there are precious few days left in the year, it is still not too late to cut your 2010 tax bill. But you may have to move fast. Click here for ten prime tax-saving ideas to consider.

Highlights of the New Small-business Law

The new Small Business Jobs and Credit Act-signed by the president on September 27, 2010-provides several tax breaks designed to stimulate the economy. Here's a summary of the key provisions in the new law of interest to employers.
 
One Management Style Does Not Fit All

There are many critical factors that will determine whether a small business is successful or not, but one of the most important is the leadership exhibited by its owner. In this competitive environment, business fortunes can rise or fall quickly, in direct correlation to the owner's management techniques. Naturally, you need to have good people working for you, but it all starts at the top.

Click here to read more. 

Aurum Capital Markets Summary

Please click here for a summary from Aurum Wealth Management Group on the performance of the major market indices through the end of September as well as a recap of the significant events influencing the markets.

Conforming Lease Accounting to International Standards

Historically, operating leases have been a significant source of financing, so when the Financial Accounting Standards Board (FASB) recently issued a proposal that would dramatically change accounting for them, businesses took notice. FASB has proposed these changes to address the valid criticism that our current accounting does not record all lease obligations on the balance sheet. 

To learn the more important elements and ramifications, of the proposed rule and actions you should take now to prepare your organization, click here.

Health Care Coverage Reporting Requirement Delayed Until 2012

On October 12, the Internal Revenue Service announced that reporting the cost of an employee's coverage under an employer-sponsored group health plan on Form W-2 will not be required for Forms W-2 issued for 2011. After receiving input from the American Payroll Association and other payroll stakeholders, IRS determined that the relief is needed to provide employers with more time to make any necessary changes to their payroll systems or procedures to prepare for complying with the reporting requirement. Read IRS Notice 2010-69 here.

At the same time, IRS issued a draft version of the 2011 Form W-2  with a note on the back of Copy B stating that employers who wish to report the cost of employer-provided health insurance for 2011 should do so in Box 12 with new Code DD. The form also shows shading in Box 9, which is being reserved because it will no longer be used to report the Advance Earned Income Credit, which is eliminated effective January 1, 2011. The draft form is available here.

Fraud Alert: IRS Rejected Federal Tax Payment Email Scam

As you may remember reading in past issues of this e-newsletter, the IRS does not initiate taxpayer communications through e-mail. We've received reports of clients receiving emails with subject lines similar to "Your Federal Tax Payment ID 010357109 is rejected".

This is a scam e-mail designed to collect personal information. If you receive an email with a similar subject line, delete the email immediately.

Click here for more information.

To read this issue of Special Delivery in its entirety, click here.