Print this page

The 2010 Tax Relief Act

On December 17th, the President signed into law The 2010 Tax Relief Act that includes 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 2 percentage point cut in employee-paid payroll taxes and self-employment tax for 2011, new incentives to invest in machinery and equipment, and a host of retroactive and extended tax breaks for individuals and businesses.

Bush-era tax cuts extended for two years

• Individual income tax rates - the income tax rates for individuals will stay at 10%, 15%, 25%, 28%, 33% and 35% (instead of moving to 15%, 28%, 31%, 36% and 39.6%)
• Capital gain and dividend rates - both capital gain and dividend tax rates remain at 15% (instead of moving to 20% and up to 39.6%, respectively)
• Alternative Minimum Tax (AMT) patch - the higher exemption amount from AMT remains (instead of moving to pre-2001 levels) and allows for nonrefundable personal credits to offset AMT
• Estate tax relief - the exemption amount is increased to $5 million (instead of $1 million) with the top tax rate reduced to 35% (instead of 55%), new portability of unused exemption between spouses and reunification of the estate tax with the gift tax
• Marriage tax penalty - both the tax bracket and standard deduction for married couples remain at 200% of the respective amounts for single taxpayers (thereby avoiding the "marriage tax penalty")
• Phase-outs for personal exemptions and itemized deductions - higher-income taxpayers will not have their personal exemption and itemized deduction amounts reduced as a result of their income levels

Temporary employee/self-employed payroll tax cut for 2011 - under prior law, employees pay a 6.2% Social Security tax on all wages earned up to $106,800 (in 2011) and self-employed individuals pay 12.4% Social Security self-employment taxes on all their self-employment income up to the same threshold.  For 2011, the new law gives a 2% payroll/self-employment tax holiday for employees and self-employeds.  As a result, employees will pay only 4.2% Social Security tax on wages and self-employed individuals will pay only 10.4% Social Security self-employment tax on self-employment income up to the threshold.

Incentives for businesses to invest in machinery and equipment

• 100% first-year bonus depreciation for new machinery and equipment placed in-service after September 8, 2010 and before January 1, 2012 (other tangible personal property is eligible in addition to machinery and equipment)
• 50% first-year bonus depreciation for new machinery and equipment placed in-service after December 31, 2011 and before January 1, 2013 (other tangible personal property is eligible in addition to machinery and equipment)
• Extension through December 31, 2012, of the election to accelerate the AMT credit instead of claiming first-year depreciation
• Increased expensing amount to $125,000 (instead of $25,000) and investment-based phase-out to $500,000 (instead of $200,000) for tax years beginning after December 31, 2011

Expired tax breaks retroactively reinstated and extended through 2011

• Research and development tax credit
• New markets credit
• 15-year write-off for qualifying leasehold improvements, restaurant buildings and improvements and retail improvements
• Empowerment zone tax incentives
• Work opportunity tax credit (no extension for Hurricane Katrina employees)
• Election to deduct state and local general sales taxes in lieu of state and local income taxes
• Extension of tax-free distributions from IRAs for charitable purposes
• Extension of deadlines related to tax-exempt bonds for the Gulf Opportunity Zone
• 50% first-year bonus depreciation for certain new property investments made in specified hardest hit areas with the Gulf Opportunity Zone (expenditures in 2011 for property placed in-service by December 31, 2011)

These are some of the major provisions of the new law that impact you and your business.  We can provide you with more detailed information on any of these items.  In this ever-changing tax environment, it is more important than ever to be aware of, prepared for and able to plan around the complexities of the tax law.  We are ready to assist you with a customized tax plan.  Please call us to set up a time to talk about your tax planning.

For more information, please contact your HORNE advisor or local HORNE office.