Year-End Tax Planning Alert—The 2010 Tax Act

2010 Tax Act

The newly passed and signed 2010 Tax Act, formally named the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, includes several provisions that will affect taxpayers. Here is the information you need to know now about this legislation, formally named the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.

Major Provisions

The new law

  • postpones the sunset of the 2001 and 2003 tax cuts;
  • reduces the estate tax;
  • extends unemployment benefits;
  • includes an alternative minimum tax (AMT) patch;
  • continues through 2012 the lower capital gains tax rate introduced by the Jobs and Growth Tax Relief Reconciliation Act of 2003; and
  • extends for two years the repeal of the itemized deduction phase-out and the personal exemption phase-out.

provisions That May Affect You

Estate Tax

The Act temporarily reinstates the estate tax, with an estate tax rate of 35% and an estate tax exemption of $5 million (adjusted for inflation after 2011).

Payroll Tax

For 2011, the Act reduces the rate for the Social Security portion of payroll taxes to 10.4% by reducing the employee rate from 6.2% to 4.2%. The employer’s portion remains 6.2%.

Family

The Act extends several expired or expiring provisions affecting families, including the following:

  • The increased standard deduction for married taxpayers filing jointly, which is scheduled to expire after 2010, continues for two years.
  • The $1,000 child tax credit amount continues for two years instead of reverting to $500.
  • The increased starting and ending points for the earned income credit continues for two years.
  • The $3,000 amount for the child and dependent care credit, which was scheduled to revert to $2,400 after 2010, continues for two years.
  • The American Opportunity Tax Credit continues for two years.

The Act also makes adjustments to the gift exclusion and generation-skipping transfer (GST) tax that will affect family giving:

  • The federal gift tax exemption is increased to $5 million for 2011 and 2012, up from $1 million in 2010.
  • The GST tax exemptions are set at $5

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