Western CPE, the firm that I use for my continuing education sent out this summary
YEAR-END PLANNING WITH THE NEW LAW
At last, the Republicans and the President have put aside their differences and compromised on a temporary extension of the 2001 Bush tax rates. The 2010 tax rates will continue for 2011 and 2012. President Obama wanted the rates to go up for high-income taxpayers, but the agreement doesn't include any increase to rates, regardless of income.
On December 17, 2010, the President signed into law the "Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010." What's the best part of the legislation? It's the law, and that means we're finally back in business just in time for year-end planning.
Ideas for year-end.What does the extension of the Bush tax cuts mean to us and our clients as year-end approaches?
1.If income and deductions are about the same in 2010 and 2011, we can now plan that the tax burden will be similar between the years. No big tax changes will hit our clients on their 2011 tax returns.
2. Dividends and long-term capital gains for 2011 will continue to be taxed at 15%. There's no need to accelerate either type of income into 2010 to secure a lower tax rate.
3. The zero tax rate for dividends and long-term capital gains will continue into 2011 for low-income taxpayers. A "low-income" taxpayer for 2010 is one whose taxable income is below $34,000 single and $68,000 married filing joint. Of course, a client with 2010 taxable income below these thresholds should recognize capital gains before year-end, at least to the extent the gains fall into the 0% rate.
4. Postponing income from 2010 to 2011 is still a valid year-end tax planning move. Constructive receipt rules apply, so simply hiding a check in the drawer for a few weeks doesn't make the income taxable in another year.
5.. Accelerating deductions into 2010 from 2011 is still a valid year-end tax planning move. AMT may make a prepayment of property tax or state income tax valueless.
6. Choosing to report income from a 2010 Roth IRA conversion in 2011 and 2012 is more attractive now that we know the tax brackets will be the same in 2011 and 2012 as those in 2010. Perhaps you should look again at the advisability of a 2010 Roth IRA conversion before year-end.
7. Bonus depreciation is increased from 50% to 100% for qualifying assets purchased after September 8, 2010, and before January 1, 2012. Purchase of new equipment before year-end will get your business client a 100% deduction for the cost. Does this sound like §179 expensing to you? Almost. Section 179 is good for new and used equipment. Section 179 is limited to the taxable income of the business. One hundred percent bonus depreciation is available only for new assets, and the depreciation deduction can create a loss.
8. AMT is patched for 2010. If you did a tax projection earlier in the year, it's likely that your tax planning software used lower AMT exemption numbers and showed your client well into AMT. Redo the projection for more accurate numbers.
Lots more changes are included in the new legislation. Other tax provisions are included in the agreement, including an employee payroll tax holiday, a $5-million estate exemption, a patch to AMT, several extenders of 2009 deductions, and a two-year extension of the research and development credit.