On December 17, 2010, the Tax Relief and Job Creation Act of 2010 was signed into law.  In addition to providing an extension of unemployment benefits for the long-term unemployed, the legislation included a long-anticipated extension of the Bush era tax cuts that were set to expire on January 1, 2011.  Other significant provisions include a new Alternative Minimum Tax (AMT) patch, a major modification to the estate tax and a one-year payroll tax reduction of 2%.

The act also extends existing federal income tax rates for two additional years.  Failure to extend the Bush tax cuts would have resulted in a marginal income tax increase across the board.  The six tax brackets (10%, 15%, 25%, 28%, 33% and 35%) are now extended through the end of 2012.

Long-term capital gains rates and qualified dividends will remain taxed at no more than 15% through the end of 2012.

The annual gift tax exclusion per individual remains at $13,000 per beneficiary.

Under the new law, each person has a 5 million exemption from Federal estate and gift taxes, and the 5 million amount is adjusted for inflation in 2012; the top estate and gift tax rate for the next two years is now set at only 35%.  Also the heirs of these estates will get a step-up in basis in the properties they inherit to the properties’ fair market value (FMV) at date of death.   Please keep in mind that the 5 million applicable exclusion does not last forever – the 2010 Tax Act is not permanent tax legislation.  If the 2010 Tax Act is not extended or made permanent, the federal estate and lifetime gift exemption will revert to $1,000,000 per individual.

The Alternative Minimum Tax (AMT) has become an almost unavoidable stealth tax for many higher-income individuals and families.  In recent years AMT has affected about 4 million people.  However if Congress ever fails to index or adjust the AMT exemption amount annually, it is estimated that AMT will affect between 20 and 30 million taxpayers.  Individuals who live in high tax states are primary candidates for AMT.

In 2010, the President signed a health care act with huge business and tax implications in 2011 and thereafter.  One of the most important changes states that adult children who do not have employer-provided health insurance must be included on their parents’ employer-provided health insurance until the age of 26.

Matthew R. Horowitz, CPA works consultatively with businesses and individuals to assist with their entity’s Quickbooks accounting preparation, their tax planning issues and tax preparation needs.  In addition he consults extensively with insurance and retirement planning issues.  He can be reached at 410-312-7622 or at www.horowitzcpa.com