President Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (The 2010 Act).
The 2010 Act contains a number of favorable provisions, including a two-year extension of the Bush-era tax cuts, estate tax relief, extension and enhancement of a number of business and individual tax breaks, a two-year alternative minimum tax (AMT) “patch,” a 2% payroll/self-employment tax cut for 2011 for employees and self-employed individuals, and reinstatement of the sales tax deduction for 2010 and 2011.
The key elements of the package include the following:
• 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.
• The research credit for expenditures incurred after December 31, 2009, but before December 31, 2011 has been reinstated.
• 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.
• 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.
For questions please don't hesitate to email us at TAXACCinfo@saltmarshcpa.com
Andrew Kent has been promoted to Senior Manager in the Litigation and Valuations Consulting segment of Saltmarsh, Cleaveland & Gund. He is a Certified Business Appraiser (CBA), a Certified Machinery and Equipment Appraiser (CMEA) and holds both a J.D. and M.B.A. from the University of Florida.
