Bush tax cuts extended: The Bush tax cuts were scheduled to expire at the end of 2010 and are now extended through 2012. The 25%, 28%, 33% and 35% brackets will continue; the 15% rate for long-term capital gains and qualified dividends for those in the 25% or higher tax brackets are also extended through 2012, as is the 0% rate for these types of income for taxpayers below the 25% bracket.
2011 payroll tax holiday:
For 2011, employees will pay only 4.2% Social Security tax on wages up to $106,800 (down from 6.2% in 2010), and self-employed taxpayers will pay only 10.4% Social Security self-employment taxes on self-employment income up to $106,800 (down from 12.4% in 2010).
Extension of bonus depreciation:
For qualified property (generally most types of tangible non-real property whose original use
begins with the taxpayer) placed in service after September 8, 2010 and through December 31, 2011, 100% of the cost can be expensed under the bonus depreciation provisions that were in effect in 2010. In addition, 50% bonus depreciation will continue to be available for qualifying purchases made through the 2012 calendar year.
R&D tax credit:
The credit is reinstated for two years through 2011.
Estate and Gift Tax Provisions
Lower rate and higher exemption for 2011 and 2012:
For 2011 and 2012, the Act reduces the estate tax and gift tax top rate to 35%.
It also increases the exemption to $5 million for 2011 with a further increase for inflation in 2012. These changes are temporary.
After 2012, the top rate will be 55%, and the exemption will be $1 million.
Special tax saving choice for 2010:
The Act allows estates of decedents who died in 2010 to choose between (1) estate tax (based on
a $5 million exemption and 35% top rate) and a step-up in basis, or (2) no estate tax and modified carryover basis.
GST tax changes:
The GST tax is an additional tax on gifts and bequests to grandchildren and younger generations. The 2010 Tax Relief Act lowers GST taxes for 2011 and 2012 by increasing the exemption amount from $1 million to $5 million (indexed after 2011) and reducing the rate from 55% to 35%.
New portability feature:
Under the 2010 Tax Relief Act, any exemption that remains unused as of the death of a spouse who dies after December 31, 2010 and before January 1, 2013 is generally available for use by the surviving spouse in addition to his or her own $5 million exemption for taxable transfers made during life or at death.