Overview of New Tax Bill

On December 17, 2010, President Obama signed into law the 2010 Tax Relief Act.  This is a wide-ranging tax bill that affects most, if not all, taxpayers.  Many provisions contained in the Act extend the current income tax laws in addition to new estate tax provisions that provide taxpayers with a big win.  Unfortunately, the Act only provides tax rate certainty for 2011 and 2012.  This ensures the tax debate will be a big issue in the 2012 elections.  The uncertainty continues but taxes stay low for now. Below is a brief description of the provisions contained in the Act. 

Marginal Tax Rates & Capital Gains

Current low federal income-tax rates, which were scheduled to end December 31, 2010, will remain in place through 2012.  This includes an extension of 15% capital gains and qualified dividend rates.

Estate, Gift, and Generation-Skipping Taxes

The estate tax exemption, along with the exemptions for gifting and generation-skipping transfers, was dramatically raised to $5 million and the tax rate lowered to 35%, but only through 2012.  Additionally, a surviving spouse may now receive any unused exemption from their deceased spouse.  These provisions provide for some great opportunities for gifting to family members and grandchildren over the next 2 years.

Business Tax

100% bonus depreciation in the first year for qualified new assets purchased between September 8, 2010 and December 31, 2011.  The law provides for 50% first-year depreciation in 2012.  The Section 179 deduction will be up to $125,000 on purchases through 2012.  The research credit is extended and there are also many energy incentives through 2011. 

Social Security Tax Holiday

There will be a "payroll tax holiday" in 2011, meaning employees who pay 6.2% in Social Security taxes out of each paycheck will pay just 4.2% for the next year on wages up to $106,800.  This applies to the self-employed as well. 

 Alternative Minimum Tax

The alternative minimum tax patch was continued again into 2011 and the exemptions increase slightly.

 Other Highlights

  • A charitable contribution from your IRA, up to $100,000, can be passed directly to charity through 2011.
  • The $1,000 per child tax credit stays through 2012.  The tax credit of up to $3,000 for dependent care for children under 13 was renewed.
  • The $2,500 "American Opportunity Credit" for the first four years of undergraduate education will still be available. 
  • Student loan interest continues as a deduction. 
  • The marriage penalty relief provisions are extended through 2012.
  • A number of additional energy related credits were also extended or expanded, including popular credits for homeowners who make energy-efficient home improvements or buy energy-efficient new homes.        

Unemployment Benefits

Long-term unemployment benefits are extended for 13 months.

There are many fine distinctions and opportunities created by this Act, and we encourage you to contact us with any questions you may have.  Sincerely, BHGR's Trusts and Estates team, David G. HillSusan T. Richards, Jonathan A. Lehmann, and Kimberly M. Fischer.