Highlights of the New Tax Bill (Part 2)

The following is the 2nd part of the summary (see below) of the Tax Relief Act of 2010 and is provided compliments of UHY Advisors, Inc. UHY is a tax and business advisory services firm with whom we have had a strategic partnership with for over 25 years:

Changes to the Federal Estate Tax Law – Although the Federal Estate Tax was eliminated for individuals dying in 2010, under the Tax Relief Act of 2010, the Federal Estate Tax will be reinstated in 2011 and 2012, but subject to a new set of rules during such period, including:

1. Estates will now be able to claim a $5 million “applicable exclusion amount” ($10 million for couples), indexed for inflation after 2011, thereby exempting estates valued at less than $5 million from any Federal Estate Tax;
2. The top marginal tax rate will be 35% for Federal Estate, Gift, and Generation Skipping Transfer Taxes;
3. Effective for gifts made after December 31, 2010, the tax rates and applicable exclusion amounts for Federal Gift Taxes will be determined with respect to the rates and exclusion amounts of the Federal Estate Tax (in other words, the $5 million applicable exclusion amount can be used to shield gifts from the Federal Gift Tax, and, to the extent not used to exempt lifetime gifts from the Federal Gift Tax, can also be used to shield transfers at death from the Federal Estate Tax);
4. As an additional benefit to the estates of those individuals who have died in 2010, they may now elect to either be governed by the Federal Estate Tax rules under EGTRRA (under which the Federal Estate Tax was eliminated for 2010 subject to a modified carryover basis rule) or the new rules set forth in the Tax Relief Act of 2010; and
5. The personal representative of the estate of the first spouse to die will be able to transfer any unused “applicable exclusion amount” ($5 million) of the decedent to the decedent’s surviving spouse.

FAVORABLE TAX PROVISIONS AFFECTING BUSINESSES

Exemption of employers for having to pay their 6.2% Share of the Social Security Tax for certain hires of previously unemployed workers – Your business will be exempt from paying the employer’s 6.2% share of the Social Security payroll tax on the formerly unemployed new-hire for not only the remainder of 2010, but also for all of 2011. Plus, if you keep that formerly unemployed new-hire on the payroll for a continuous 52 weeks, your business will be eligible for a nonrefundable tax credit of up-to-$1,000 after the 52-week threshold is reached.

Bonus Depreciation Rules and Section 179 Limits – Under the Tax Relief Act of 2010, a 100% write-off will be allowed on new qualifying property acquired and placed in service after September 8, 2010 through December 31, 2011. For new qualifying property acquired and placed in service during 2012, the bonus depreciation rate has been set at 50%. For tax years beginning after December 31, 2011, the maximum expensing amount under IRC Section 179 has been set at $125,000 and the investment-based phase-out amount at $500,000 (under current law, the expensing figures were set to drop from $500,000/$2 million for 2010 and 2011 to $25,000/$200,000 after 2011). Also, off-the-shelf computer software will qualify for the Section 179 expensing election if placed in service in a tax year beginning before 2013.

As described above, both businesses and individuals are affected by the Tax Relief Act of 2010. For questions or more information on this topic, please contact your tax professional at UHY Advisors in Houston at (713) 960-1706 or in Dallas at (214) 243-2900, or visit us on the Web at uhy-us.com.

The statements contained herein are provided for information purposes only, are not intended to constitute tax advice which may be relied upon to avoid penalties under any federal, state, local or other tax statutes or regulations, and do not resolve any tax issues in your favor. Furthermore, such statements are not presented or intended as, and should not be taken or assumed to constitute, legal advice of any nature, for which advice it is recommended that you consult your own legal counselors and professionals.

UHY Advisors, Inc. provides tax and business consulting services through wholly owned subsidiary entities that operate under the name of “UHY Advisors.”  UHY Advisors, Inc. and its subsidiary entities offer services from offices across the United States. UHY Advisors, Inc. and its subsidiary entities are not licensed CPA firms.

UHY LLP is a licensed independent CPA firm that performs attest services.

UHY Advisors, Inc. and UHY LLP are independent U.S. members of Urbach Hacker Young International Limited.

This article was written by Gary Field, CPA at Numerico, PC. Click here to view Numerico’s website.