Davis & Bellomo

On Friday December 17, 2010, President Obama signed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act (New Tax Act). This act largely extended the 2001 EGTRRA and the 2003 JGTRRA tax acts, commonly referred to as the “Bush Tax Cuts,” which were scheduled to sunset on December 31, 2010. The New Tax Act provides:

1. Individual tax rates will be extended for 2011 and 2012 at the current levels (10%, 15%, 25%, 28%, 31% and 35%).
2. The preferential 15% tax rate on Qualified Dividend Income (QDI) was also extended for 2011 and 2012.
3. The long-term capital gain rate will remain at 15% (0% for those taxpayers in the 10% 15% brackets).
4. The 15% tax bracket for married couples will remain double that of single taxpayers; thus, there will be no "marriage penalty."
5. The child credit will remain at $1,000, and there will be no phase-out of the dependency exemptions.
6. The New Tax Act includes an "AMT Patch," which sets the 2010 Alternative Minimum Tax exemption for single and married taxpayers at $45,450 and $72,450, respectively.
7. Taxpayers who are at least 70 ½ may make charitable contributions directly from an IRA, for the 2010 and 2011 tax years.
8. A payroll tax holiday for wage earners in 2011 cuts the employee share of the FICA tax from 6.2% to 4.2%. Note the employer's rate is still 6.2%.

Although the New Tax Act made some small changes to the law for the 2010 tax year, there is still time for year-end planning before December 31, 2010. With this in mind, we recommend clients consider the following:

1. Prepaying deductible taxes (state/local income taxes or property taxes) to accelerate the deduction on the federal income tax return, assuming it does not give rise to an alternative minimum tax liability (AMT).
2. Making charitable contributions from IRA accounts (for taxpayers who are at least 70 ½ prior to year end).
3. Recognizing capital gains, particularly for those taxpayers who can take advantage of the 0% long-term capital gains rate.
4. Taking distributions from qualified accounts, such as IRAs, to take advantage of the rate tables (for taxpayers over the age of 59 ½).
5. Determining whether converting regular IRA assets to a ROTH IRA is advantageous.
6. Purchasing assets to be used in a trade or business to take advantage of the 100% bonus depreciation or Section 179 expense, assuming of course that purchasing the asset makes good financial sense.

The New Tax Law provides taxpayers with many tax planning opportunities for 2011 and 2012. To that end, we will continue analyzing the law and will provide ongoing commentary and examples of tax planning ideas in the coming weeks.

About us

Davis & Bellomo provides financial peace of mind to entrepreneurs, their businesses and their families. We pledge a unique experience. Our process starts with active listening, identifying our clients’ financial concerns and the underlying, root causes of those concerns. Through our ongoing, partnership-style relationships with clients, we not only solve initial needs, but build multi-faceted solutions leading to the financial futures our clients envision