As many of you may have heard, this past weekend President Obama
signed the "Tax Relief, Unemployment Insurance Reauthorization, and Job
Creation Act of 2010" into law. This recently enacted law is a sweeping tax
package that includes, among many other items, an extension of the Bush-era tax
cuts for two years, estate tax relief, a two-year "patch" of the alternative
minimum tax (AMT), a two-percentage-point cut in employee-paid payroll taxes and
in self-employment tax for 2011, new incentives to invest in machinery and
equipment, and a host of retroactively resuscitated and extended tax breaks for
individuals and businesses. Here's a look at the key elements of the package:
- The current income tax rates will be retained for two years (2011
and 2012), with a top rate of 35% on ordinary income and 15% on qualified
dividends and long-term capital gains.
- Employees and self-employed workers will receive a reduction of
two percentage points in Social Security payroll tax in 2011, bringing the rate
down from 6.2% to 4.2% for employees, and from 12.4% to 10.4% for the
self-employed.
- A two-year AMT "patch" for 2010 and 2011 will keep the AMT
exemption near current levels and allow personal credits to offset AMT. Without
the patch, an estimated 21 million additional taxpayers would have owed AMT for
2010.
- Key tax credits for working families that were enacted or expanded
in the American Recovery and Reinvestment Act of 2009 will be retained.
Specifically, the new law extends the $1,000 child tax credit and maintains its
expanded refundability for two years, extends rules expanding the earned income
credit for larger families and married couples, and extends the higher
education tax credit (the American Opportunity tax credit) and its partial
refundability for two years.
- Businesses can 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 property placed in service in 2012, the new law
provides for 50% additional first-year depreciation.
- Many of the "traditional" tax extenders are extended for two
years, retroactively to 2010 and through the end of 2011. Among many others,
the extended provisions include the election to take an itemized deduction for
state and local general sales taxes in lieu of the itemized deduction for state
and local income taxes; the $250 above-the-line deduction for certain expenses
of elementary and secondary school teachers; and the research credit.
- After a one-year hiatus, the estate tax will be reinstated for
2011 and 2012, with a top rate of 35%. The exemption amount will be $5 million
per individual in 2011 and will be indexed to inflation in following years.
Estates of people who died in 2010 can choose to follow either 2010's or 2011's
rules.
- Omitted from the new law: Repeal of a controversial expansion of
Form 1099 reporting requirements.
- Also not included: Extension of the Build America Bonds program,
which permits state and localities to issue federally-subsidized municipal
bonds.
I hope this information is helpful. If you would like more details
about these provisions or any other aspect of the new law, please do not
hesitate to call our office.
Very truly yours,
Koivisto and Koivisto, P.C.
Certified
Public Accountants
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