Procrastinators Rejoice –Tax Breaks Extended
Due to the lingering uncertainty of proposed tax law changes, many business owners and individuals rushed to make changes to their tax or estate plans so as to avoid the possibility of increased tax rates. For those who delayed on this process despite the fear of greater tax burdens, now is the time to celebrate; with the enactment of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creations Act of 2010 (H.R. 4853), the “Bush-Era” tax cuts have been extended!
There are numerous provisions in the legislation that could impact your income, lifestyle, business and estate. As with all tax law changes it important to discuss your plans with your team of professional advisors as all situations are unique, but here are a few of the approved provisions:
For Individuals – some of the provisions you should be aware of:
- Extension of the 10%, 15%, 25%, 28%, 33% and 35% individual income tax rates.
- Extension of the tax rates for qualified dividend income and capital gain (0% and 15%)
- AMT. The alternative minimum tax will be prevented from ensnaring additional taxpayers for 2010 and 2011
- Payroll Tax Holiday (only for 2011) a reduction of the FICA Social Security tax rate on employees to 4.2% (from 6.2%) and reduction of the self-employment tax (SECA) rate to 10.4% (from 12.4%) on wages up to $106,800. All wage earners (including the self-employed individuals) will benefit and have the effect of returning up to $2,136.
- A new estate tax rate and exemption amount for 2011 and 2012. The exemption amount is set at $5 million per person ($10 million per couple) and a maximum 35% tax rate is in effect. These rates will sunset at the end of 2012 and the 55% tax rate and a $1 million exemption will return.
- Retroactive Estate Tax for 2010 with election to forego the tax for decedents dying in 2010, the estate tax is retroactively restored allowing the step in basis of decedent’s assets Extension of deduction for State and local general sales taxes in lieu of State and local income taxes for taxpayers who itemize their deductions.
- IRA-Charitable Contributions – Distributions to certain charitable recipients from IRAs was extended through 2011.
- 100% exclusion Small Business Capital Gains – exclusion of 100% of the gain the sale of qualifying small business stock acquired before 2012 and held for more than five years.
For Business – some of the provisions you should be aware of:
- Extension of bonus depreciation (and creation of 100% bonus depreciation for assets placed in service after September 8, 2010, and before 2012) and Section 179 expensing amounts.
- Extension of business incentives, including: the research and development credit; 15-year depreciation for leasehold, restaurant and retail improvements; 7-year depreciation for motorsports entertainment complexes; special expensing for film and television costs.
- Extension of special energy incentives including: the new energy efficient home credit; incentives for biodiesel and renewable diesel; suspension of the limitation on percentage depletion for oil and gas from marginal wells; and grants for specified energy property in lieu of tax credits under Section 1603 of the American Reinvestment and Recovery Act of 2009.
- Extension of corporate charity deductions for donations of food inventory, computer equipment and books.
While we strongly suggest you consult accounting professionals like Anstiss & Co. before making any adjustments to your financial plans, it appears as though now there is no incentive to recognize ordinary income and sell assets in 2010 because ordinary income and capital gains rates will remain the same for the next two years. Additionally, it makes sense to consider making charitable contributions in 2010 to recognize the current tax benefit.
Anstiss & Co. is a Lowell- based public accounting firm founded by Ray Anstiss, Sr. in 1964, and is currently listed as a Top-50 Accounting Firm in Massachusetts by the Boston Business Journal, and serves clients throughout the United States.
