Congress Passes the 2010 Tax Relief Act

On December 16, 2010 Congress passed the 2010 Tax Relief Act.  The Act extends the Bush tax cuts and introduces other tax breaks and stimulus measures. 

Highlights of the 2010 Tax Relief Act for individual taxpayers include:

• Tax rates will remain at 10%, 15%, 25%, 28%, 33%, and 35%
• Standard deduction for married individuals will remain at 200% of the standard deduction for single taxpayers (Estimated for 2011 to be $5,800 for single or married filing separate and $11,600 for married)
• Itemized deductions of higher-income taxpayers will not be reduced
• Higher-income taxpayer's personal exemptions will not be phased out when AGI exceeds an inflation-adjusted threshold
• Long-term capital gains (with the exception of 28% rate gain  and unrecaptured section 1250 gain)  will continue to be taxed at a maximum rate of 15%
• Alternative Minimum Tax patch has been extended through December 31, 2011

Other miscellaneous tax breaks for individuals include but are not limited to:

• The above-the-line deduction for qualified tuition and related expenses
• Eligibility of taxpayers 70 1/2 years of age or older to make tax-free distributions to a charity up to an amount of $100,000 from an IRA
• Mortgage insurance premiums are eligible to be deducted as qualified residence interest
• Certain expenses of elementary and secondary school teachers are eligible for an above-the-line deduction of up to $250
• Extended earned income credit
• Extension of the American Opportunity tax credit through 2012
• Child tax credit

Estate Tax relief was also included in the 2010 Tax Relief Act as follows:

• Reduction of the top rate of 55% down to 35%
• Increase in the exclusion amount from $1 million to $5 million dollars
• Estates of decedents dying in 2010 have the following choices:
  • Estate taxed at a top rate of 35% with a $5 million exemption and a step-up in basis, or
  • No estate tax and modified carryover basis
• Gifts made after December 31, 2010 will be reunified with the estate tax (exclusion being $5 million and top rate at 35%)

Employee and Self-employed Social Security tax cut

• The Social Security tax will be reduced by 2% for 2011. Employees will pay only 4.2% Social Security tax on wages and self-employed individuals will pay only 10.4% Social Security tax on self-employment income up to the threshold (currently $106,800) rather that the current rate of 6.2% and 12.4%

Several of the key provisions in the recently passed 2010 Tax Relief Act relating to businesses include:

Capital Investment Incentives

• A 100% write-off of the cost of property eligible for bonus depreciation under Code Sec. 168(k) that is placed in service September 8, 2010 - December 31, 2011
• A 50% bonus first-year depreciation allowance under Code Sec. 168(k) for property placed in service January 1, 2012 - December 31, 2012
• The maximum Code Sec. 179 expense amount stays at $500,000 before phaseout for tax years 2010 and 2011. For tax years beginning 2012, the maximum expense amount will drop to $125,000
• Off-the-shelf computer software placed in service before 2013 will qualify for the Code Sec. 179 expense election 

Business Tax Breaks

• Many tax breaks have been retroactively reinstated and extended through 2011 including, but not limited to - the research credit, 15 year write-off for qualifying leasehold, restaurant and retail improvements, the work opportunity credit, and energy tax credits.