Update on New Tax Law
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, signed into law Dec. 17, extends and expands a wide variety of valuable tax breaks and includes tax provisions affecting individuals and businesses. Here's a brief summary of the most important provisions.
Individual Tax Provisions
General:
- New two-percentage-point payroll tax cut for 2011
- Extension of the lower ordinary income tax rates for all tax brackets through 2012
- Extension of marriage penalty relief through 2012
- Extension of the elimination of itemized deduction and personal exemption phaseouts through 2012
- Extension of the deduction for state and local sales taxes in lieu of state and local income taxes through 2011
- Extension of the increased alternative minimum tax (AMT) exemptions through 2011
- Extension of the ability to offset AMT liability with certain nonrefundable personal credits through 2011
Investing:
- Extension of the lower long-term capital gains rates through 2012
- Extension of the lower qualified dividend tax rates through 2012
- Extension of the 100% gain exclusion on certain qualified small business stock to stock acquired through 2011
Children and Education:
- Extension of the $1,000 child credit and other enhancements of the credit through 2012
- Extension of the higher adoption credit and income exclusion for employer-provided adoption assistance through 2012
- Extension of the higher dependent care credit through 2012
- Extension of the American Opportunity education credit through 2012
- Extension of the above-the-line tuition and fees deduction through 2011
- Extension of the income exclusion for employer-provided education assistance through 2012
- Extension of the enhancements to the student loan interest deduction through 2012
- Extension of the $2,000 Coverdell Education Savings Account contribution limit and other enhancements through 2012
Charitable Giving:
- Extension of the ability to exclude from income direct contributions from IRAs to qualified charities (up to $100,000 annually) through 2011
- Extension of the ability to take a larger deduction for donations of long-term capital gains real property for conservation purposes through 2011
Estate Planning:
- Reinstatement of the estate tax for 2010 with a top rate of 35% and a $5 million exemption (compared to 45% and $3.5 million for 2009)
- Option for estates of taxpayers who died in 2010 to elect to follow the pre-Tax Relief act regime - no estate tax but limits on step-up in basis for transferred assets
- Reinstatement of the generation-skipping transfer (GST) tax for 2010 at a 0% rate with a $5 million exemption (compared to 45% and $3.5 million for 2009)
- Decrease in the top estate and gift tax rates and the GST tax rate to 35% for 2011 and 2012
- Increase in the estate, GST and gift tax exemptions to $5 million for 2011, indexed for inflation in 2012
- Ability of the estate of a taxpayer who dies in 2011 or 2012 to elect to allow the surviving spouse to use the deceased's unused estate tax exemption
Business Tax Provisions
Investment Incentives:
- Increase in bonus depreciation to 100%, generally for assets placed in service after Sept. 8, 2010, and before Jan. 1, 2012
- Extension of 50% bonus depreciation, generally for assets placed in service Jan. 1, 2012, through Dec. 31, 2012
- Increase in the Sec. 179 expensing limit to $125,000 (indexed for inflation) for 2012
- Increase in the Sec. 179 expensing phaseout threshold to $500,000 (indexed for inflation) for 2012
- Extension of accelerated depreciation for qualified leasehold-improvement, restaurant and retail-improvement property through 2011
Tax credits:
- Extension of the research credit through 2011
- Extension of the Work Opportunity credit through 2011
Charitable giving:
- Extension of the enhanced deduction for food inventory donations through 2011
- Extension of the enhanced deduction for donations of book inventory to public schools through 2011
- Extension of the enhanced deduction for computer inventory donations for educational purposes through 2011
Just the tip of the iceberg
The Tax Relief act includes numerous provisions, and we've only touched on some of them here. Many breaks are subject to a variety of rules and limitations, so it's important to discuss them with your tax advisor to determine exactly how they'll affect you.
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