Saturday, December 18, 2010

Highlights of the New Tax Law

Two-year extension of all current tax rates through 2012• Rates remain 10, 25, 28, 33, and 35 percent
• 2-year extension of reduced 0 or 15 percent rate for capital gains & dividends
• 2-year continued repeal of Personal Exemption Phase-out (PEP) & itemized deduction limitation (Pease)
Temporary modification of Estate, Gift and Generation-Skipping Transfer Tax for 2010, 2011, 2012 • Reunification of estate and gift taxes
• 35% top rate and $5 million exemption for estate, gift and GST
• Alternatively, taxpayer may choose modified carryover basis for 2010
• Unused exemption may be transferred to spouse
• Exemption amount indexed for inflation in 2012
AMT Patch for 2010 and 2011• Increases the exemption amounts for 2010 to $47,450 ($72,450 married filing jointly) and for 2011 to $48,450 ($74,450 married filing jointly). It also allows the nonrefundable personal credits against the AMT.
Extension of “tax extenders” for 2010 and 2011, including:• Tax-free distributions of up to $100,000 from individual retirement plans for charitable purposes
• 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-efficiency improvements to the home (IRC section 25C)
• Exclusion of qualified small business capital gains (IRC§1202)
Temporary Employee Payroll Tax Cut• Provides a payroll tax holiday during 2011 of two percentage points. Employees will pay only 4.2 percent on wages and self-employed individuals will pay only 10.4 percent on self-employment income up to $106,800.

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