Bush Tax Rates Extended For All; Other Incentives Reinstated, Extended
President Signs Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010


December 17, 2010

After much political controversy-including a stalled bi-partisan delegation, Presidential negotiations with Republican leaders, and late-night Congressional approval-President Obama signed into law today the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010.

Significantly, the legislation extends the current Bush-era tax rates for ALL income levels-holding brackets at 10%, 15%, 25%, 28%, 33% and 35% through Dec. 31, 2012. Capital gains and dividends rates remain at 15% through Dec. 31, 2012. The Act also extends unemployment benefits through 2011 for those laid off for more than 26 weeks and less than 99 weeks.

Other key items addressed in the legislation include:

• Estate Tax Relief / Gift Tax Exemption Unification - Initially expected to return next year to a top rate of 55% with an exemption amount of $1 million, the estate tax is set at 35% for estates over $5 million ($10 million for couples) through Dec. 31, 2012. Importantly, the Act also reunifies the estate and gift tax exemptions through 2012. Individuals can make up to a $5 million lifetime gift before incurring the 35% tax.
• Bonus Depreciation - Up from 50% in 2010, businesses can immediately deduct 100% of the cost of qualified new assets, such as new equipment, purchased on or after Sept. 9, 2010 and on or before Dec. 31, 2011. Bonus depreciation returns to 50% in 2012.
• Section 179 Expensing - Enhancing provisions passed earlier in 2010 to encourage business spending, the Act provides for a $125,000 dollar limit and a $500,000 investment limit in 2012.
• R&D Credit Extension - Businesses can continue claiming credit for qualified technological research and development, retroactively for 2010 and throughout 2011.
• Alternative Minimum Tax (AMT) Patch - Saving many households from being subject to AMT, the Act increases exemption amounts for 2010 to $47,450 for individuals and $72,450 for joint filers. In 2011, the respective amounts are increased to $48,450 and $74,450.
• Payroll Tax Cut - Replacing the Making Work Pay credit from the American Recovery and Reinvestment Act of 2009, this provision cuts an employee’s portion of the Social Security payroll tax from 6.2% to 4.2% up to $106,800 in wages earned in 2011. Self-employed individuals will pay 10.4% up to $106,800.
• Itemized Deduction Limitation Repeal / Personal Exemption Phaseout - In 2010 there was no limit placed on the amount of itemized deductions allowed for higher-income individuals; the Act extends this advantage through December 31, 2012. The personal exemption phaseout (PEP), which reduced the total amount of exemptions certain taxpayers may claim, was repealed in 2010; the Act extends the repeal of the PEP through December 31, 2012.
• Small Business Capital Gain Extension - The Act extends the 100% exclusion for qualified small business stock acquired before Jan. 1, 2012 and held for more than five years.
• Marriage Penalty Relief - The enhanced standard deduction for married couples filing jointly (twice the amount for a single individual) is extended through December 31, 2012.
• Charitable Incentive Extensions - Among other specific provisions, the Act extends tax-free distributions from IRAs for charitable purposes through 2011 and special rules for contributions of capital gain real property for conservation purposes.
• Child Tax Credit and Earned Income Tax Credit Extensions - The Act extends both the $1,000 child tax credit and the enhanced earned income tax credit (EITC) for low income workers through Dec. 31, 2012.
• Education Tax Incentive Extension - The American Opportunity Tax Credit is extended, giving students $2,500/year for the cost of course materials through Dec. 31, 2012.

The Act addresses additional business and individual tax extenders that expired in 2009, pushing them through 2010 and 2011, including:

• New Markets Tax Credits
• 15-year recovery period for qualified leasehold improvements, restaurant building and improvements, and retail improvements
• Tax treatment of certain dividends of RICs and certain investments of RICs
• State and local sales tax deduction
• Higher education tuition deductions

The legislation also includes energy incentive extensions such as credit for refined coal facilities, credits for biodiesel and renewable diesel fuel, grants for certain energy property in lieu of tax credits, and energy efficient home and appliance credits.

In light of the Act’s passage, businesses and individuals finally can begin planning with some certainty (at least in the short-term) for the most advantageous year-end tax strategies. We are already working diligently to incorporate the new law into planning for our clients. Contact Tracy Monroe at 330.255.4357 (tmonroe@cohencpa.com) or a member of your service team, if you would like to discuss specific issues.