Just to get the law passed last night, the House agreed to the Senate’s version of the extender bill. But they limited the benefits for two years, giving them time to improve on the balancing act and refine the benefits.
Let me give you a brief summary of things that affect your life.
Personal Benefits:
- We get to keep our existing tax brackets – 10, 15, 25, 28, 33 and 35 percent for two years, through December 31, 2012.
- The income tax rate schedule used by estates and nongrantor trusts (15, 25, 28, 33 and 35 percent) also has been extended through December 31, 2012.
- Capital gains and qualified dividends remain at 0% and 15% through December 31, 2012.
- Itemized deduction and personal exemption phaseout is held off through December 31, 2012.
- Married standard deduction remains the same (double the single standard deduction) through December 31, 2012.
- Earned Income Credit and related rules and definition retained through December 31, 2012.
- Adoption Credit limits and refundability through 2011 has been extended through December 31, 2012.
- Child Care Credit for up to $3,000 expenses (up from $2400) extended through December 31, 2012.
- Employer-Provided Child Care, one of the benefits most overlooked by small businesses (see Chapter 10 in Small Business Taxes Made Easy), has been extended through December 31, 2012.
- Deduction for Mortgage Insurance Premiums (PMI) is extended for only ONE year, with limitations.
- American Opportunity Tax Credit for higher education expenses has been extended through December 31, 2012.
- Educational Assistance from employers of $5,250 has been extended through December 31, 2012.
- Student Loan Interest deductions and limits have been extended through December 31, 2012.
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- The ,000 contribution limit (up from 0) on Coverdell Education Savings Accounts has been extended through December 31, 2012.
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- National Health Service Corps Scholarship Program and the Armed Forces Scholarship Program will still be tax-free through December 31, 2012.
- The State and local sales tax deduction has been extended through December 31, 2012.
- Higher education tuition deduction has been extended through December 31, 2012.
- Teacher’s classroom expense deduction has been extended through December 31, 2012.
- Charitable contribution of IRA proceeds has been extended through December 31, 2012.
- Charitable contributions of appreciated property for conservation purpose has been extended through December 31, 2012.
- We have an AMT patch, intended to protect the middle class from alternative minimim taxes. Still a joke. ($47,450 for individual taxpayers, $72,450 for married taxpayers fi ling jointly and surviving spouses, and $36,225 for married couples filing separately. )But it’s good for two years – through 2011.
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(It had previously expired on 12/31/2009.) - 2% payroll tax cut replaces the Making the Work Pay Credit. for 2011 only. For the self-employed, it’s also worth only 2%.
Business Benefits:
- Bonus depreciation zooms to 100% for certain new qualified property purchases made after September 8, 2010 and before January 1, 2012. To 50% for other qualified property placed in service after December 31, 2011 and before January 1, 2013..
- Section 179 depreciation is up to $125,000 with a $500,000 investment limit for tax years beginning in 2012 (and sunsetting after December 31, 2012). The 2010 Tax Relief Act also extends the treatment of off-the-shelf computer software as qualifying property if placed in service before 2013.
- There are additional extenders for research credits, transportation credits and more.
Estate Taxes
- For people dying in 2010 through December 31, 2012, we do have an estate tax. It hits estates worth million or more with a flat rate of 35%.
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- Note: For deaths during 2010, the estate has the option of selecting the new law – or opting out of estate taxes altogether. The decision will affect the basis of the inherited assets.
- The tax credit for state estate taxes paid is restored through December 31, 2012
There’s more. Lots more! These are some of the primary things that concerned us.
You can read CCH’s excellent summary here.
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