The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010
A.k.a., the Bush tax cuts extender act (as we like to call it) was signed into law by President Barrack Obama this past week with some sweeping tax cuts, extensions, and new provisions for both individuals and businesses. Some of the highlights of the new act are:
The current income tax rates will be retained for two more years (2011 and 2012) with a top rate of 35% on ordinary income and 15% on qualified dividends and long-term capital gains
The payroll tax on social security was dropped 2%, from 6.2% to 4.2% for employees and self-employed workers. For the self-employed, this makes the rate 10.4% versus 12.4%. Including medicare the new “self-employment tax” rate is 13.3%
The “AMT patch” has once again been passed, basically indexing the AMT exemption amount for inflation for 2010 and 2011. This typically results in several thousand dollars in tax savings for those taxpayers affected by AMT
Several key tax credits were extended including the Child Tax credit, rules expanding the availability of the Earned Income Credit for low earnings families, and the American Opportunity Tax Credit (credit for higher education expenses)
Businesses can now write off 100% of their equipment and machinery purchases, effective for property placed in service after September 8, 2010 and through December 31, 2011. For 2012, the 50% bonus depreciation has been reinstated as well
Other items such as the sales tax in lieu of state income tax deduction, the $250 out-of-pocket expenses for teachers deduction, and the research credit have all been extended two more years (through 2012)
The estate tax will be reinstated for 2011 and 2012, with a top tax rate of 35% and an exemption amount of $5 million per individual. This is a major change from previous discussions in Washington and probably is the singlest biggest item in the bill. Additionally for taxpayers who died in 2010, the estate has the option of choosing the original 2010 rules (no estate tax and limited basis step-up) or the 2011 rules ($5 million exemption and full income tax basis step-up).
There are many changes to tax law for the next two years but these are some of the highlights. As always if you have any specific questions about how the new law pertains to your specific tax situation, please do not hesitate to contact your LMGW advisor at once!