President Obama signed into law the much-discussed tax relief bill, which extends through 2012 the Bush-era income tax cuts and other tax incentives for individuals and businesses. It will have significant ramifications for taxpayers in every bracket, saving billions of dollars that legislators hope will spur business development and economic growth.
Middle Class Tax Relief Act
The Middle Class Tax Relief Act of 2010 ensures that income tax rates will not change until at least the next presidential election. The lowest rate will remain 10 percent and the highest rate will be 35 percent, as they have been since 2001. If the bill had not passed, income tax rates would have risen for all Americans on January 1, up to 39.6 percent in the highest bracket.
Qualified capital gains and dividends will continue to be taxed at 15 percent, and the itemized deduction limitation and personal exemption phaseout will be repealed for two more years. The Joint Committee on Taxation estimates it will save high-income taxpayers more than $20 billion, by allowing them to claim deductions that they were not allowed to claim prior to 2010.
Estate Tax Rates + Planning
The estate tax, which was repealed in 2010, returns in 2011 – but it will not be as costly as it was in 2009. Estates worth more than $5 million will be taxed at 35 percent. Without legislation, the estate tax would have been 55 percent on estates worth more than $1 million.
Other tax incentives in the new law include a reduction in payroll taxes paid by employees and the self-employed; an alternative minimum tax “patch,” which raises the exempt amount and ensures that millions of middle-class Americans will not have to pay an AMT; and extension of the child tax credit and various education credits. The bill also extends unemployment benefits for 13 months.
The law also includes incentives that are designed to generate investment and business development, including allowing 100 percent bonus depreciation for qualified purchases made between September 9, 2010, and December 31, 2011, and an extension of the research credit that expired in 2009. Numerous alternative-energy incentives also have been extended.
For more details on any particular provision of the Middle Class Tax Relief Act, the Joint Committee on Taxation has released a technical explanation, which you can find by clicking here. For more information on how the new law will impact you and your business, contact click here to contact us.