what's new

Home / About Us / What's New / President Signs Tax Relief Act

President Signs Tax Relief Act

Posted 12-17-2010  |  Download Article

The recently enacted “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010” (Act) is a sweeping tax package that includes, among many other items, an extension of current tax rates; estate tax relief; a two-year “patch” of the alternative minimum tax (AMT); a two-percentage-point cut in employee-paid payroll taxes and in 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. Here's a look at the key elements of the package:

  • The current income tax rates will be retained for two years (2011 and 2012), with a top rate of 35% on ordinary income and 15% on qualified dividends and long-term capital gains.
  • A two-year AMT “patch” for 2010 and 2011 will keep the AMT exemption near current levels and allow personal credits to offset AMT.
  • The estate tax will be reinstated for 2011 and 2012, with a top rate of 35%. The exemption amount will be $5 million per individual in 2011 and will be indexed to inflation in following years. The Act also provides for portability between spouses of the maximum exclusion.  Estates of people who died in 2010 can choose to follow either 2010's or 2011's rules.
  • Employees and self-employed workers will receive a reduction of two percentage points in Social Security payroll tax in 2011, bringing the rate down from 6.2% to 4.2% for employees, and from 12.4% to 10.4% for the self-employed.
  • Businesses can write off 100% of their equipment and machinery purchases, effective for property placed in service after September 8, 2010 and through December 31, 2011. For property placed in service in 2012, the new law provides for 50% additional first-year depreciation.
  • The Act extends the repeal of the phase out of itemized deductions and personal exemptions through 2012.
  • The Dependent Care Credit, Adoption Credit and Child Tax Credit have been extended through 2012.
  • The American Opportunity Tax Credit is extended through 2012.
  • The employee Educational Assistance Exclusion is extended through 2012.
  • The enhanced Earned Income Tax Credit is extended through 2012.
  • Listed below are the main individual and business tax provisions that were retroactively reinstated through 2011:

Individual Tax Provisions:

  •  
    • State and local sales tax deduction
    • Above the line deduction for qualified higher education expenses
    • Teacher’s classroom expense deduction
    • Charitable contribution of appreciated property for conservation purposes
    • Charitable contribution of IRA proceeds

Business Tax Provisions:

  •  
    • The research and development credit
    • 15-year write offs for qualified leasehold improvements, and restaurant buildings (and certain improvements to such restaurant buildings)
    • 7-year write offs for certain motorsports racetrack property
    • The employer wage credit for activated military reservists
    • Look-through treatment of payments between related controlled foreign corporations
    • The Indian employment credit
    • The new markets tax credit
    • The railroad track maintenance credit
    • The election to expense advanced mine safety equipment
    • Expensing of environmental remediation costs
    • The deduction allowable for domestic production activities in Puerto Rico
    • The enhanced deduction for contributions of food and book inventories, and computer equipment for educational purposes
    • A liberal rule for S corporations making charitable donations
    • The special rules for interest, rents, royalties and annuities received by a tax-exempt entity from a controlled entity
    • Empowerment zone tax incentives
    • Renewal community tax incentives
    • The work opportunity credit (extended for four months (through the end of 2011))

Energy Provisions:

  •  
    • The credit for manufacturers of energy-efficient new homes
    • Incentives for biodiesel and renewable diesel
    • Grants for specified energy property in lieu of tax credits
    • Provisions related to alcohol used as fuel
    • The energy efficient appliance credit
    • The credit for energy-efficient improvements to existing homes
    • The 30% investment tax credit for alternative vehicle refueling property

If you’d like to learn more about any of these provisions and how they might affect your personal tax situation, please contact Sue Weiskopf-Larson at sweiskopf@hlbtr.com, 651-407-5893.  For questions relating to your business tax situation, please contact Gloria McDonnell at gmcdonnell@hlbtr.com, 651-407-5829.