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What Business Owners Need To Know About The New Tax Law

After much twisting of arms and gnashing of teeth, Congress took action on the tax issue…

On December 16, 2010, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 was passed.

As with any legislation there are hundreds of pages and thousands of words but, in a nutshell, this is how the legislation will affect you and your business:

Tax Rates

  • The current tax rates of 10, 25, 28, 33 and 35 percent are extended through 2012.
  • The 0 or 15 percent tax rate on capital gains and dividends is extended for two years.
  • The Personal Exemption Phaseout and itemized deduction limitation is repealed for another two years.

Alternative Minimum Tax

  • The AMT exemption amounts for 2010 and 2011 are increased to $47,450 in 2010 ($72,450 if married and filing jointly) and $48,450 in 2011 ($74,450 if married and filing jointly).
  • Non-refundable personal credits against the AMT are allowed.

Extensions of Tax Incentives and Deductions are Continued in 2010 and 2011

  • You can make tax free distributions of up to $100,000 from individual retirement plans to charities.
  • There is an above-the-line deduction for qualified tuition and other related expenses.
  • Under the American Opportunity Tax Credit, you can claim tuition expenses of up to $2,500.
  • You can again deduct state and local general sales tax.
  • You’re eligible for a thirty percent (30%) credit for improvements to the energy efficiency of your home.
  • Qualified small business capital gains are excluded.
  • There are deductions for contributions of capital gain real property for conservation purposes.
  • If you own a qualified residence (under the Tax Code), your mortgage insurance premiums will continue to be deductible

Temporary Employee Payroll Tax Cut

  • In 2011, a payroll tax “holiday” will allow employees to pay only a 4.2% Social Security tax on wages and self-employed individuals will pay only 10.4% on self-employment income up to $106,800.

Temporary Extension of Investment Incentives

  • Bonus depreciation is extended for taxable years 2011 and 2012, and the Year 1 amount is raised to a 100% depreciation allowance.
  • The maximum amount and phase-out threshold under Section 179 of the Tax Code for Small Business Expensing is set at $125,000 and $500,000, respectively.  Both amounts will be indexed for inflation.

Some Expiring Business Provisions Are Extended Through 2011

  • You will receive enhanced charitable deductions for corporate contributions of computer equipment for educational purposes.
  • C corporations are eligible for enhanced charitable deductions for contributions to food inventory.
  • Another enhanced charitable deduction for C corporations is for contributions to book inventories in public schools.
  • A special rule was included for S corporations making charitable contributions of property.
  • You’re eligible for a 15 year straight line cost recovery for qualified leasehold improvements.
  • There is an employer wage credit for activated military reservists.
  • There are special tax benefits for certain real estate developments.
  • There is an extension of expensing of environmental remediation costs.
  • There is a new formula for treatment of interest-related dividends and short term capital gain dividends of Regulated Investment Companies.
  • There is now a work opportunity tax credit.
  • There is a 100% exclusion of qualified small business capital gains held for more than 5 years.
  • You’re eligible for research credit.

Unemployment Insurance is Extended

  • The unemployment insurance proposal provides a one year reauthorization of federal UI benefits.

This is a brief, no fuss, no fancy language breakdown of how the recent changes to the tax laws will affect you and your business.  If you live or work in Massachusetts and would like a more in-depth analysis of your current situation and how to best take advantage of these changes, call us today – (978) 263-6900 – to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit.  Normally, this session is $1250, but if you mention this article and we still have room on our calendar this month, we will waive that fee.

Click this link to learn more about Acton, MA Creative Business Lawyer, David Feakes.

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At The Parents Estate Planning Law Firm, we answer your questions at your convenience; we stay in frequent communication; and we meet to discuss changes in life circumstances and in the law to ensure that your assets are protected.

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