Finally… President Obama signs 2010 Tax Relief Act into law.
After much wrestling and posturing, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 was signed by the President on Friday, December 17th. A few of these items may affect you in 2010, but most of them are effective beginning in 2011. However, many of you have been waiting to see what 2011 would bring so you can make year-end decisions for 2010. We hope this helps.
The 2010 Tax Relief Act includes 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 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.
Individual Federal Income Tax changes and extensions
- Tax rates. Scheduled increases are postponed. Current maximum rate to stay at 35% for married couples earning over $379,150.
- Standard deduction for married couples. Remains at twice the standard deduction for singles.
- High income earners. Phase-outs of itemized deductions and exemptions that were scheduled to be put in place in 2010 will not be applied.
- Miscellaneous credits. Adoption credit, extended earned income tax credit (EITC), credit for household and dependent care, and child tax credits are extended.
- Long-term capital gains and qualified dividends. Will continue to be taxed at a maximum 15% rate through 2012.
- Alternative Minimum Tax. AMT exemption amounts are increased for 2010 and 2011 so many middle income taxpayers avoid the tax.
- Other extenders. Many items are extended for 2011 and 2012, including child tax credit of $1,000 per child, charitable distributions from IRAs, education credits and deductions, sales tax deduction, and the deduction for teachers’ classroom expenses.
Federal Estate and Gift Tax changes
- Rates and exclusions. For 2011 and 2012, lowers the top rate to 35% and increases the exclusion from $1 million to $5 million. Allows estates of 2010 decedents to choose the 2010 approach or use 2009 rules.
- Gifts. Reunifies the gift tax with the estate tax, allowing exclusions from tax for lifetime gifts of up to $5 million.
Business Incentives
- Bonus depreciation. Allows 100% write-off in the year placed in service for new qualified property acquired after September 8, 2010 and before January 1, 2012.
- Section 179 deduction. For tax years beginning January 1, 2012 and forward, the limit will be $125,000 on purchases up to $500,000.
Payroll Tax Relief
- Social Security withholding. Reduces the employee portion of Social Security withholding from 6.2% to 4.2%, adding up to $2,136 of annual take-home pay. Self-employed individuals will pay a combined rate of 10.4% on their earnings (in addition to Medicare tax of 2.9%).
Extensions of Energy- Related Provisions through 2011
- Energy-efficient residential homes. Credit for manufacturers.
- Grants for specified energy property. Continues the option to receive cash grant payments In lieu of tax credits.
- Credit for energy-efficient improvements to existing homes. The credit will be reinstated as it existed prior to American Recovery and Reinvestment Act.
- Investment tax credit. 30% credit would be available for alternative vehicle refueling property.
