Davis & Hodgdon Associates, CPAs, PLC,Williston accounting firm Davis & Hodgdon Associates CPAs (www.dh-cpa.com(link is external)) has worked up a synopsis of the deal President Obama cut with congressional Republicans on taxes and jobless benefits. The deal signed into law on December 17, 2010 extends President Bush’s tax cuts and makes changes to other key provisions. Among the major highlights: An extension of the Bush tax cuts for all, not just lower and middle incomers. Thus, the 35% top rate on individuals will continue for two years. And caps on itemized deductions and personal exemptions won’t return until 2013.Favorable rates on dividends and long-term capital gains.The 15% maximum rate on both remains in effect through 2012. The same goes for the 0% rate on gains and dividends for filers in the 10% or 15% tax brackets.A return of the estate tax for 2011 and 2012, with a $5-million exemption, a 35% rate and a reinstatement of a stepped-up basis for heirs. For 2010, estates will have a choice: Pay no estate tax, but heirs face a carryover basis for inherited assets that have appreciated by more than $1.3 million (plus $3 million for assets going to a surviving spouse). Or the heirs can claim a stepped-up basis on the inherited assets if the estate pays estate tax at 35% on assets over $5 million.The estate tax exemptions will be portable, so that when one spouse dies, the unused amount goes to the surviving spouse and can be used at his or her death. This ends the need for spouses to set up trusts in their wills just to save estate tax.The lifetime gift tax exemption will rise to $5 million. This will be done by reintegrating the gift and estate taxes, restoring the system in place before 2004.Some refundable tax breaks will be extended through 2012.Higher earned income and child credits.The American Opportunity college credit.Many tax breaks that lapsed after 2009 will be revived for 2010 and 2011. They include direct payouts to charity of up to $100,000 from IRAs, the R&D credit and the write-offs for state sales tax, up to $250 of teacher supplies and college tuition.A Social Security tax cut for employees and self-employed. For 2011 only, the 6.2% tax rate for the employee portion of Social Security tax will decline to 4.2%, a tax saving of up to $2,136 per filer. This will replace the Making Work Pay Credit, which provided a maximum tax saving of $400 for single filers and $800 for couples.Businesses of any size will be able to immediately expense the cost of assets by claiming 100% bonus depreciation. The break is retroactive for assets put in use after Sept. 8, 2010 and before Jan. 1, 2012. In tax year 2012, 50% bonus depreciation will be available. Only new assets with useful lives of 20 years or less will qualify. This includes machinery, land improvements, and single-purpose farm buildings.The AMT exemptions will increase for 2010 and 2011.
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