Blog
Posted in General on Dec 23, 2010
Welcome to VP & B's first blog post! First off, all of us here at Vilmure, Peeler & Boucher wish you and your family a very Merry Christmas and a Happy New Year!
You may think it strange to have a post about taxes right before Christmas, well, normally it would be very strange. But Congress dropped a huge Christmas present on all taxpayers in the form of a new tax bill just recently enacted. So, you see, taxes can be linked to merriment and celebration!
The new tax bill comes very late in the year and from a "lame duck" Congress. It also comes from a Democratic controlled Congress which makes the concessions reached in the bill even more surprising. There has been much debate about whether the new law should be considered a "tax cut" or instead, a "tax break extension" or even a "stimulus bill". The truth is that it is all three. The Bush Era tax cuts were extended. There were some additional tax incentives and write-offs that would qualify the bill as a tax cutter, not just an extender. And, finally, it can be considered economic stimulus. The "Making Work Pay" tax credit for 2009 and 2010 of up to $800 was essentially renewed into 2011 and put on steroids in the form of a new 2% cut in the FICA payroll tax that is available to all workers, self-employed included, that pay Social Security tax regardless of income level. For those who earn the maximum earnings subject to Social Security, the credit will be equal to $2,136!
Here are the other highlights of the bill:
Extenders
· State & local sales tax deduction
· Higher education tuition deduction
· $250 above-the-line teacher's classroom expense deduction
· Charitable contributions of IRA
· Charitable contributions of appreciated property for conservation purposes
· AMT exemption amounts increased to 2009 levels
· Nonrefundable personal credits can be offset against AMT
· 2010 individual tax rates through 2012
· 2010 rates on qualified dividends and capital gains through 2012
· No phaseout of itemized deductions or personal exemptions
· Increased standard deduction and 15% bracket for married couples
· $1,000 Child Tax Credit
· Earned Income Tax Credit enhancements
· American Opportunity Tax Credit (education credit)
· Student loan interest deduction
· Credit for energy efficiency improvements extended. However, the amount allowed returns to the pre-2009 lifetime limit of $500 (rather than $1,500)
Note that the additional standard deduction for property tax was not extended.
Payroll Tax Cut
As described above, the Act reduces the employee share of the OASDI portion of Social Security tax from 6.2% to 4.2% for wages earned in calendar year 2011, up to the taxable wage base of $106,800. This reduction applies to all wage earners and self-employed individuals with no income or AGI phaseouts.
Business Incentives
· 100% bonus depreciation (yes - 100%!) for qualified asset purchases after September 8, 2010 and before January 1, 2012
· The §179 expense election will continue to be $500,000 for 2010 and 2011 and will be reduced to $125,000 for 2012. The purchase threshold will be reduced to $500,000 in 2012 from $2,000,000 in 2010 and 2011
· Extension of R & D credit
Estate & Gift Tax
· Federal estate tax exemption increased to $5 million with a maximum rate of 35% for 2011 and 2012
· The executor for decedents dying in 2010 can elect to use the $5 million exemption and 35% rate or the zero estate tax with limited step-up in basis provisions
· The gift tax exemption is raised to $5 million in 2011 and 2012 (from the current $1 million). The gift tax rate will continue to be 35% of gifts over the exemption amount.
· The $5 million estate tax exemption has now become "portable" between spouses. Whatever one spouse doesn't use on his/her death, the surviving spouse may use on his/her death. So a second-to-die spouse could have an exemption amount exceeding $5 million.
As you can see, Santa was extremely generous! The Estate & Gift Tax changes afford some fantastic wealth transfer opportunities in the next two years for wealthy families. The payroll tax cut will give meaningful relief to all working families. And the draconian tax increases that would have gone into place January 1st won't happen - at least for another two years at which time we will probably be having this discussion once again...
Last Updated by Dave Myers on 2010-12-23 17:44:28
