The recently enacted "Tax Relief, Unemployment Insurance Reauthorization, and Job
Creation Act of 2010" is a sweeping tax package that includes, among many other items,
an extension of the Bush-era tax cuts for two years, estate tax relief, a two-year
"patch" of the alternative minimum tax (AMT), a two-percentage-point cut in
employee-paid payroll taxes and in self-employment tax for 2011, new incentives to
invest in machinery and equipment, and a host of retroactively resuscitated and extended
tax breaks for individuals and businesses. Here's a look at the key elements of the
- The 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 tax in 2011, bringing the rate down from
6.2% to 4.2% for employees, and from 12.4% to 10.4% for the self-employed.
- A two-year AMT "patch" for 2010 and 2011 provides a modest increase
in AMT exemption amounts and allows personal nonrefundable credits to offset AMT
as well as regular tax. Without the patch, an estimated 21 million additional
taxpayers would have owed AMT for 2010.
- Key tax credits for working families that were enacted or expanded
in the American Recovery and Reinvestment Act of 2009 will be retained.
Specifically, the new law extends the $1,000 child tax credit and maintains its
expanded refundability for two years, extends rules expanding the earned income
credit for larger families and married couples, and extends the higher education
tax credit (the American Opportunity tax credit) and its partial refundability
for two years.
- Businesses can write off 100% of their new 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.
- Many of the "traditional" tax extenders are extended for two years,
retroactively to 2010 and through the end of 2011. Among many others, the
extended provisions include 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; the $250 above-the-line deduction for certain expenses of
elementary and secondary school teachers; and the research credit.
- After a one-year hiatus, the estate tax will be reinstated for 2011
and 2012, with a top rate of 35%. The exemption amount will be $5 million per
individual in 2011 and will be indexed to inflation in following years. Estates
of people who died in 2010 can choose to follow either 2010's or 2011's rules.
Omitted from the new law:
- Repeal of a controversial expansion of Form 1099 reporting
- Extension of the Build America Bonds program, which permits state
and localities to issue federally-subsidized municipal bonds.
The new extended due date for filing the individual tax returns is April 18, 2011. In
addition, people claiming any of these three items - involving the state and local sales tax
deduction, higher education tuition and fees deduction and educator expenses deduction as
well as those taxpayers who itemize deductions on Form 1040 Schedule A - will be able to
file their tax returns when IRS tax processing systems are ready, which the IRS estimates
will be in mid- to late February.
Although the IRS is experiencing delays do not let that delay you from
getting your information in as soon as possible. We can prepare your tax returns in the
mean time and will be ready to file when the IRS announces it is ready to receive
We hope this information is helpful. If you would like more details about these
provisions or any other aspect of the new law, please do not hesitate to call us at
Joseph M. Dowling, CPA
President, The Dowling Group
Sean M. Dowling, CFP, EA
VP, The Dowling Group
Pursuant to the rules of professional conduct set forth in Circular 230, as promulgated
by the United States Department of the Treasury, nothing contained in this communication was
intended or written to be used by any taxpayer for the purpose of avoiding penalties that
may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any
taxpayer for such purpose. No one, without our express prior written permission, may
use or refer to any tax advice in this communication in promoting, marketing, or
recommending a partnership or other entity, investment plan or arrangement to any other