Alloy Alert - Tax Relief & Job Creation Act of 2010
Congress approved and the President signed the 2010 Tax Relief Act into law on December 17, 2010. It is a multi-billion dollar tax cut package that extends the Bush-era tax cuts until December 31, 2012, grants payroll tax relief in 2011, and includes an estate tax compromise.
Individual Income Taxes
- The following tax policies have been extended for two years through December 31, 2012:
- The Bush-era tax rates (ranging from 10% to 35%)
- The capital gains rates/qualified dividends rates (ranging from 0% to 15%)
- Itemized deductions will continue to no longer have a phase-out for higher income taxpayers
- Personal exemptions will continue to no longer have a phase-out for higher income taxpayers
- Alternative Minimum Tax exemption will be increased to $47,450 for individual taxpayers and $72,450 for joint filers for 2010. The exemption will also be increased to $48,450 and $74,450 for the 2011 tax year.
- The following tax credits have been extended for two years through December 31, 2012:
- Child Tax Credit. This credit of $1,000 per child will continue to be phased-out for higher income taxpayers.
- Dependent Care Credit. This credit is based on a percentage (between 35% to 20%) of the first $3,000 ($6,000 if more than one child) of expense paid for childcare for children under the age of 13. The maximum credit is $2,100 ($6,000 X 35%).
- American Opportunity Tax Credit. This credit relates to qualified tuition and higher education related expenses and is phased-out for higher income taxpayers.
- The following other tax incentives have been extended through December 31, 2011:
- Energy Credits. The $1,500 energy credit will continue as scheduled in 2010 and has been extended at the $500 pre-2009 amount for 2011. This credit will be allowed for taxpayers who make energy efficient improvements to their private residences.
- State and local sales tax deductions
- Higher education tuition deductions
- Teacher’s classroom expense deduction
- Charitable contributions of IRA proceeds
- Coverdell Education Savings Accounts maximum contribution of $2,000 and expanded qualified expenses will be extended for two years through December 31, 2012.
- The employee portion of Social Security tax will be reduced by 2% from 6.2% to 4.2% for tax year 2011. The maximum Social Security wages will continue to be $106,800, creating a maximum savings of $2,136
- Self-employment tax will also be reduced by 2% for the 2011 tax year.
Business Income Taxes
- 100% bonus depreciation will be allowed for qualified investments made between September 9, 2010 and December 31, 2011. There will be no dollar limitations on bonus depreciation.
- 50% bonus depreciation will be allowed for qualified investments made between January 1, 2012 and December 31, 2012.
- Section 179 expense limits for 2010 and 2011 will be $500,000 per individual investment and $2,000,000 of total annual capital investments. In 2012, this amount will revert back to $125,000 per individual investment and $500,000 per year (indexed for inflation).
- Research Tax Credit will be extended through December 31, 2011.
- Small business stock gain exclusion will be extended for one year. The new act continues the 100% exclusion of any capital gains from the sale of qualified small business stock and extends the original issue to January 1, 2012. The stock must be held for more than five years to qualify for the exclusion.
- Work Opportunity Tax Credit will be extended through December 31, 2011. This credit is equal to 40% of up to $6,000 of qualified first year wages subject to certain requirements.
- Multiple business tax incentives will be generally extended for two years through 2010 and 2011 including energy incentives and the five-year write off of farm machinery and equipment.
- Charitable deductions will continue to be allowed through 2011 for food inventory and for books to public school and computer equipment for educational purposes.
- An exclusion of $5,000,000 of assets will be available to be passed down to heirs tax free ($10,000,000 for married couples) for decedents passing away between January 1, 2011 and December 31, 2012
- A maximum 35% tax rate will be placed on estates for decedents passing away between January 1, 2011 and December 31, 2012.
- All assets of an estate will be valued at fair market value for exclusion purposes, and heirs will be distributed assets with the current fair market value as their basis in the assets for decedents passing away between January 1, 2011 and December 31, 2012.
- Decedents will have the option to value all assets at fair market value or at cost for decedents passing away between January 1, 2010 and January 1, 2011.
- Portability will allow surviving spouses to elect to take advantage of unused portions of the estate tax exclusion of his or her pre-deceased spouse. The portability election will sunset on January 1, 2013.
This summary highlights the key provisions of the 2010 Tax Relief Act and is not intended to be all inclusive. If you have any questions about the provisions of this act, please do not hesitate to call.
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