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. Here’s a quick guide to the key provisions: Individual income tax rates: Rates stay at 2010 levels for 2011 and 2012 for all taxpayers, with the lowest marginal tax bracket at 10 percent and the highest at 35 percent. Capital gains and qualified dividends: Long-term capital gains and qualified dividend rates remain at a 15-percent maximum for 2011 and 2012. Taxpayers in the 10-percent and 15-percent brackets qualify for a 0-percent tax rate on some or all capital gain income. Itemized deductions and personal exemptions: Repeal of the itemized deduction and personal exemption phaseouts continues through 2012. Marriage penalty: The standard deduction for married couples who file jointly will continue to be double the deduction for single filers through 2012. Alternative Minimum Tax: The 2010 and 2011 exemptions were increased, reducing the AMT’s impact on middle class taxpayers. Certain nonrefundable personal credits can offset AMT liability for 2010 and 2011, including the Child Tax Credit, the Child and Dependent Care Credit, and the Nonbusiness Energy Property Credit. Charitable IRA: For 2010 and 2011, taxpayers over age 70½ may make a tax-free transfer up to $100,000 from their IRAs to qualified charities; transfers for 2010 can be made as late as January 31, 2011. Transfers can satisfy some or all of the required minimum distribution. Payroll tax reduction: In 2011, payroll taxes will be reduced 2 percent. Because the tax act was passed so close to year-end, expect some delay before the reduction is reflected in paychecks. Energy-efficient improvement credit: Expenses for energy-efficient furnaces, water heaters, doors, windows, and other qualified property may qualify for a credit through 2011, although the maximum lifetime credit is reduced to $500 for 2011. If a credit was taken in a prior year, no further credit is available. Other deductions: The expanded student loan interest and Coverdell education savings deductions were extended through 2012. State and local sales tax, higher education tuition, and teacher’s classroom expense deductions were extended only through 2011. Please note: Although not a deduction, $5,250 of employer-provided educational assistance for higher education can still be excluded from income. Other credits: The refundable Child Tax Credit, the expanded Child and Dependent Care Credit, and the American Opportunity Tax Credit (Hope Credit) are extended through 2012. Business tax extenders: Several business-related tax provisions scheduled to expire in 2010 were extended. Contact a tax advisor for specific information. Estate and gift taxes: The lifetime gift tax exclusion for gifts transferred in 2010 remains $1 million. For deaths after December 31, 2010, the estate tax returns. For deaths in 2010, the executor has a choice between the previous law (estate tax repeal) or the application of the new estate tax regime for estates over $5 million. The latter could provide an income tax advantage to the beneficiaries. The new act reunifies the gift and estate tax exemption and increases it to $5 million per taxpayer, with a maximum tax rate of 35 percent. You can potentially give away $5 million during your lifetime without tax impact. The generation-skipping tax exemption increases to $5 million. For lifetime gifts, you can apply a $13,000 per donee annual exclusion to gifts before tapping into the unified credit exclusion. Married couples can double the exclusion and gift $26,000 per donee. The new portability provision permits a surviving spouse to apply the unused portion of a deceased’s spouse’s $5 million exemption to increase his or her available exemption. In light of the new estate provisions, 2011 is a good time to have your estate planning documents reviewed by your attorney to ensure the language is flexible enough to adapt to your goals. © 2010 Commonwealth Financial Network