Debra A. Simmons, CPA

Tax Bill Finally Passes

In Income Taxes on December 17, 2010 at 8:33 pm

The President is expected to sign the Tax Relief/Job Creation Act of 2010 today at 3 p.m. Eastern Time. The bill extends Bush-era tax cuts, provides payroll tax relief, and reinstates the estate tax.

Extended provisions

The bill extends these provisions, which had expired on December 31, 2009:

  • State and local sales tax deduction;
  • Higher education tuition deduction;
  • $250 above-the-line teacher’s classroom expense deduction;
  • Charitable contributions of IRA; and
  • Charitable contributions of appreciated property for conservation purposes.

(Note: the additional standard deduction for property tax was not extended.)

The bill provides an AMT patch. The exemption amounts for 2010 and 2011 are:

  2010 2011
Single/Head of Household $47,450 $48,450
Married filing joint/surviving spouse $72,450 $74,450
Married filing separate $36,225 $37,225

In addition, nonrefundable personal credits can be applied against AMT for two more years.

Here is a partial list of extensions of current law (these changes are effective through 2011 unless otherwise noted):

  • 2010 individual tax rates (effective through 2012);
  • 2010 rates on dividends and capital gains (effective through 2012);
  • No phaseout of itemized deductions or personal exemptions;
  • Increased standard deduction and 15% bracket for married couples;
  • $1,000 Child Tax Credit will continue;
  • Earned Income Tax Credit enhancements;
  • Maximum expenses for the Child and Dependent Care Credit remain at $3,000/$6,000;
  • Deduction of mortgage insurance premiums;
  • American Opportunity Tax Credit;
  • Exclusion for employer educational assistance;
  • Student loan interest deduction;
  • Increased contributions to Coverdell Education Savings Accounts; and
  • Adoption Credit and exclusion for employer adoption assistance.

Payroll tax cut

The Act reduces the employee-share of the OASDI portion of Social Security tax from 6.2% to 4.2% for wages earned in calendar year 2011, up to the taxable wage base of $106,800. This reduction applies to all wage earners and self-employed individuals with no reduction for income (i.e., no AGI phaseouts).

Business incentives

The Act provides the following business incentives:

  • 100% bonus depreciation for investments made after September 8, 2010, and before January 1, 2012;
  • The §179 threshold will be $125,000/$500,000 for tax years beginning in 2012 (the limits are set at $500,000/$2 million for 2010 and 2011 under SBJA);
  • Extension of the R&D credit;
  • Extension of the 100% small business stock exclusion;
  • Extension of transit benefits; and
  • Extension of a number of business extenders.

Energy incentives

Many business energy incentives were extended, and the individual credit for energy efficiency improvements was also extended. However, the amount allowed returns to the pre-2009 lifetime limit of $500 (rather than the 2009/2010 maximum of $1,500).

Estate taxes

The federal estate tax exemption is increased to $5 million with a maximum rate of 35% for 2011 and 2012. For decedents dying in 2010, the executor may elect to use the $5 million exemption and 35% rate, or the no estate tax and carryover basis provisions under EGTRRA.

This list is not complete but contains the most common provisions and those that affect the most taxpayers.

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