After huffing and puffing and bloviating some more, Congress passed the compromise measure extending the Bush Tax Cuts for two years. It will be signed by President Obama in the next few days. Here’s what’s in and out and what this means for you.
- All of the current (2010) marginal tax rates will remain unchanged through 2012.
- The Estate Tax will be at 35% for estates above $5 million for 2011 and 2012. As of now, the Estate Tax will move back to 55% on estates above $1 million for 2013. The estate tax adds portability of the $5 million estate tax exemption; as noted in Joe Kristan’s post, this will add work for tax professionals–many estates which otherwise would not need to file an Estate Tax return will have to.
- The AMT patch has been added for both 2010 and 2011 (but not 2012). The AMT exemption for 2010 will be $47,450 for individuals and $72,450 if married filing jointly.
- The bill lowers the social security tax on employees by 2% (to 4.2% from 6.2%) for 2011 only. The employer portion of this tax will remain at 6.2%.
- Most of the tax breaks that needed to be extended were extended for2010 and 2011. These include the R&D credit, the teachers’ tax deduction of $250, and credits on energy efficient appliances. One tax break has vanished, though: You can no longer deduct property tax paid unless you itemize your deductions.
- This makes 2010 tax planning like most years. In my most recent newsletter I wrote, “…[T]his year is the first time in the last twelve years where I’m advising many clients to move income into the current year rather than deferring income into the following year. That’s because income tax rates are definitely going up, and this year you likely want to consider paying more in tax.” This is no longer true. Thus, the normal rules apply: In general, you should accelerate deductions and defer income. If you think you will be hit with AMT this may not be the case, and you should contact our office to discuss your specific situation.
So Merry Christmas, taxpayers, and enjoy the gift that Congress has left in your stockings for the New Year.