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Investment Planning |
Tax Relief Act of 2010
The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 was signed into law on December 17, 2010. Below are the highlights of the tax plan.
Extension of the Bush Tax Cuts
Current tax rates are extended for everyone, including upper-income folks, preserving the 35% top tax rate on individuals as well as the 15% maximum rate on dividends and long-term capital gains through 2012. Additionally, there is a two-year continued repeal of personal exemption phase-outs and itemized deduction limitations.
Payroll Tax Holiday for Employees and the Self-Employed
During 2011 only, there will be a payroll tax cut of 2 percentage points. Employees will pay only 4.2 percent on wages and self-employed individuals will pay only 10.4 percent on self-employment earnings. These percentages apply to incomes up to $106,800 in 2011.
Extension of "Tax Extenders" for Years 2010 and 2011
- Tax-free distributions from IRAs for charitable purposes by individuals age 70-1/2 and older, up to $100,000 per year
- Above-the-line deduction for qualified tuition and related expenses
- Expanded Coverdell Accounts and definition of education expenses
- American Opportunity Tax Credit for tuition expenses of up to $2,500
- Deduction of state and local general sales taxes
- 30-percent credit for energy-efficient home improvements
- Exclusion of qualified small business capital gains
Reduced Gift and Estate Taxes
The estate and gift tax exemptions rose to $5 million per person and the tax on amounts over $5 million decreased to 35%, for 2011 and 2012. For a death in 2010 only, estates have a choice: pay no estate tax and elect carryover basis of the estate assets, or claim a stepped-up basis on the inherited assets if the estate pays estate tax at 35% on assets over $5 million.
Alternative Minimum Tax (AMT) Relief
The exemption amounts increased for 2010 to $47,450 for individuals ($72,450 for those married filing jointly) and for 2011 to $48,450 ($74,450 married filing jointly).
More Details
A more complete explanation of each of the above items can be found in a terrific article on the Deloitte website titled "Staying in Place: Congress Extends the Bush Tax Cuts".
Tips Disclaimer
These tips contain information that may change over time as a result of new tax legislation. Although we make efforts to keep this information current, you should check with your tax advisor before taking action based upon any information contained in these tips.