New Year - New (Extended) Tax Laws The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. (The "Act") After great speculation and debate, Congress has now passed and President Obama has signed a tax package which gives individuals and businesses some predictability for the next two years through December 31, 2012. The Act extends the Bush-era tax cuts, provides estate tax relief, an "AMT" patch, a reduction in employee paid payroll taxes and provides businesses with new incentives to make capital investments by extending depreciation and tax credits. Individual ProvisionsThe following is a summary of certain individual provisions addressed in the new Act. This summary is not all inclusive and everyone should consult his/her tax advisor to review the full extent of the Act and its impact on your specific circumstance.
- Income Tax Rates Current rates will continue for the next two years (2011 & 2012). The top rate will remain 35%. Most individuals in the 15, 25, and 28% rate brackets would have seen their rates increase by 5% or more without passage of the new Act.
- Payroll Tax Individuals and employees or those who are self-employed will receive a reduction in their tax equal to 2% reducing employees tax contributions from 6.2% to 4.2% and self-employed individuals from 12.4% to 10.4%.
- Capital Gains/Dividends. The rate on capital gains was scheduled to increase to 20% but under the new Act the rate will remain at 15%. (Zero percent for taxpayers in the lowest brackets of 10% and 15%). The tax on certain qualified dividends would have increased and reverted to the tax on ordinary income at the increased rates referenced above. The Act also extended special rules for the excludable gains on the sale of small business stock, collapsible corporations and accumulated earnings tax.
- Tax Extenders/Itemized Deductions Tax incentives including state and local sales tax deductions, higher education tuition deduction, teacher's classroom expense deduction, charitable contributions of IRS proceeds and charitable contributions of appreciated property for conversation purposes. The prior repeal of certain limitations on the use of itemized deductions by higher income individuals has also been extended.
- Alternative Minimum Tax (AMT) The two–year AMT patch will prevent in excess of an estimated 20 million middle income individuals from paying increased tax. The exemption from AMT for 2010 is $47,450 for individuals and $72,450 for married taxpayers filing jointly. For 2011, the exemptions increase to $48,450 for individuals and $74,450 for married taxpayers filing jointly.
- Tax Credits Several child and educational credits were also extended including child tax credits, earned income credit, adoption credit, dependent care credit, employer-provided child care credit and deductions, credits and exclusions under the Educational Assistance Exclusion, Student Loan Interest Deduction and Coverdell Education Savings Accounts and Scholarships.
- Federal Estate Tax After a one-year period with no estate tax, the tax will resume beginning in 2011 with a maximum rate of 35%. There is an exclusion (credit) in the amount of $5 million for individuals and $10 million for married couples who implement certain planning techniques to utilize the first spouse to die's credit. The act also reinstates the "stepped up basis rules" for property acquired from a decedent's estate providing for the ability to avoid a tax on property that appreciated in value over a decedents' lifetime. The Act also provides additional benefit and flexibility by allowing a surviving spouse to take advantage of the unused portion of the estate tax exclusion of his/her deceased spouse. The Act also provides for a Gift tax exclusion of $5 million for individuals but this amount, as was the rule before, reduces the estate tax exemption dollar-for-dollar for qualified gifts made by individuals during their lifetime.
- Homeowner Credits/Deductions The Act extends the deduction for certain premiums paid for qualified mortgage insurance for acquisition indebtedness on a residence for a period of one year subject to certain other limitations. The Act also provides for continued tax credits for energy efficiency home improvements.
Businesses also received extended and other benefits under the Act. These benefits included the ability by businesses to write off 100% of their equipment and machinery purchases and additional 50% first year depreciation. The Act also provides for work opportunity tax credits, research tax credits and business tax extenders including a 15 year recovery period for qualified leasehold improvements, restaurant building, retail improvement credits and tax incentives for empowerment zones. Penning to Attend National Estate Planning Conference 45th Annual Heckerling Institute on Estate Planning
Your planning needs remain our top priority. In furtherance of our commitment to maintain our expertise on estate, tax, business and succession planning, Dan Penning will attend the University of Miami's 45th Annual Heckerling Institute on Estate Planning the week of January 10, 2011 to hear presentations by nationally-regarded experts on the planning implications of the new tax act for 2011 and beyond. In addition, the conference will host presentations with updated information and strategies focusing on planning for lifetime transfers of individual wealth/assets and business interests. Allocating our resources to the investment of time and expense in attending these types of conferences ensures that our clients and the professionals we work with have access to the most current and extensive information available to assist in the preservation of personal and business assets. Please stay tuned for future estate planning updates resulting from the conference. Dan A. Penning