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• 2010 Tax Relief

  The “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010” was a sweeping tax package that included, among many other items, an extension of the Bush-era tax cuts for two years, 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:

  • Favorable income tax rates will be retained for two years (2011 and 2012), with a top tax of 35% on ordinary income and 15% on qualified dividends and long-term capital gains.
  • Employees and self-employed workers get a reduction of two percentage points in Social Security 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.
  • A two-year Alternative Minimum Tax (“AMT”) “patch” for 2010 and 2011 provides a modest increase in AMT exemption amounts and allows personal nonrefundable credits to offset AMT as well as regular tax.
  • Key tax credits for working families that were enacted or expanded in the American Recovery and Reinvestment Act of 2009 are retained. For example, the new law extends for two years: (a) the $1,000 child tax credit (and maintains its expanded refundability); and (b) the American Opportunity tax credit for higher education, and its partial refundability.
  • Two crackdowns on deductions for higher-income people

  … Read the rest

• 2010 Small Business Jobs Bill

  On September 27, 2010, President Obama signed into law the Small Business Jobs Act of 2010.  The law contains a number of tax provisions affecting small and large business. This bill provides an estimated $12 billion in tax breaks for small businesses and individuals, and creates a new $30 billion Small Business Lending Fund to facilitate small banks in lending to small businesses.

  Many provisions in the bill are targeted to assist small business operations through additional tax deductions and tax credits or exclusions. A few of these tax-relief provisions are as follows:

  • Increasing Internal Revenue Code (IRC) Section 179 allowance to a maximum of $500,000, phasing out at $2 million, for immediate write offs of capital investments in 2010 and 2011.
  • Expanding the list of real property qualifying for immediate expensing. The list includes leasehold, retail and restaurant improvements.
  • Extending the first-year 50% bonus depreciation for one more year on real property acquired and placed in service in 2010.
  • Removing cell phones from the listed property category.
  • Doubling the deduction for trade or business startup expenses from $5,000 to $10,000 for tax years beginning in 2010 and 2011.
  • Extending carryback period for unused general business credits for eligible small businesses from one to five years.
  • Allowing 100 percent exclusion of capital gains on investments in small business.
  • Improving tax fairness by preventing small businesses from incurring large tax penalties.
  • Permitting rollovers from elective deferral plans to Roth accounts.

  The tax relief is expected to be fully paid for the … Read the rest

• 2010 Estates – Guidance for Executors

  2010 Estate Tax

  For estates of decendents dying in 2010, the estate has two options:

  1. The estate can elect to apply the estate tax exemption of $5 million with a 35% maximum rate on the remainder. (This will be required for all estates in 2011.)  Under this option, the beneficiary’s basis in assets received is equal to the fair market value of the property on the date of death (or alternative valuation date). This option is the default method - unless an express election out of the estate tax is made by the executor – these rules apply for a 2010 estate.
  2. The estate can elect not to be subject to estate tax and apply the modified carryover basis rules to determine the beneficiary’s basis in inherited property.  This option ensures no estate tax; however, it may cause the beneficiaries to have a lower basis in inherited property as compared to option 1.

  Basis Rules for Inherited Property

  Under Option 2,  property acquired from a decedent will be re-valued at the lesser of:

  • Decedent’s basis in the property + $1.3m increase; or
  • Fair market value of the property at the date of death.

  Executors may increase the basis of property by $1.3 million (not to exceed fair market value; exceptions apply).  The method of allocation of the additional basis is at the executor’s discretion.  In the case a decedent’s estate passes to his/her surviving spouse, the basis may be increased by an additional $3 million for a total increase of … Read the rest