The newly enacted “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010” signed into law on December 17, 2010 provides for several changes to both individuals and businesses, including
- Current income tax rates will be retained for two years (2011 and 2012), with a top rate of 35% on ordinary income and 15% on qualified dividends and long-term capital gains.
- Employees and self-employed workers will receive a reduction of two percentage points in Social Security payroll tax in 2011, bringing the rate down from 6.2% to 4.2% for employees, and from 12.4% to 10.4% for self-employed individuals. The FICA tax rate for employers was not reduced.
- A two-year AMT “patch” for 2010 and 2011 will keep the AMT exemption near current levels and allow personal credits to offset AMT.
- The $1,000 child tax credit and higher education tax credit (the American Opportunity tax credit) were extended for two years.
- The election to take an itemized deduction for state and local general sales taxes in lieu of the itemized deduction for state and local income taxes and the $250 above-the-line deduction for certain expenses of elementary and secondary school teachers were extended for two years, retroactively to 2010 and through the end of 2011.
- The estate tax exemption will be $5 million per individual in 2011 and will be indexed to inflation in following years. The top estate tax rate will be 35%.
- Taxpayers who are age 70 1/2 or older can make tax-free distributions to charities from their IRA accounts up of to $100,000. These distributions are not subject to the charitable contribution percentage limitation since they are not included in gross income and cannot be claimed as a charitable deduction.
- Mortgage insurance premiums paid or accrued before Jan. 1, 2012 can be deducted as qualified residence interest subject to certain phase out rules.
- Businesses can write off 100% of their equipment and machinery purchases, effective for property placed in service after September 8, 2010 and through December 31, 2011. For property placed in service in 2012, the new law provides for 50% additional first-year depreciation.
- The research credit was extended to include qualifying expenditures paid or accrued before Jan. 1, 2012. Before passage of this new law, the research credit did not apply for amounts paid or accrued after Dec. 31, 2009.
- The 15-year write-off for qualified leasehold and retail improvement property was extended for two years through 2011.