2010 was a monumental year for tax law. This past year marked a historic intersection of tax laws simultaneously providing much-needed relief to taxpayers and enacting revenue raisers to fight the deficit. What does this mean for you? 2011 could be a very green year!
The 2010 Tax Relief Act includes some very favorable provisions for taxpayers. Capital gains and dividend tax rates will continue to be taxed at the maximum 15 percent rate until 2012, when the rates will increase to 20%. The 2010 Tax Relief Act also reduced the employee share of Social Security tax from 6.2% to 4.2%. The Social Security tax reduction replaces the Making Work Pay credit and will actually provide a greater benefit to taxpayers. Furthermore, the new rules for Roth IRA conversions will remain intact. Individuals may convert funds from a traditional IRA to a Roth IRA, regardless of income. In addition to the benefits for individual taxpayers, the 2010 Tax Relief Act provides numerous benefits to businesses. The Act will double and extend bonus depreciation from 50% to 100% for qualified property acquired between September 8, 2010 and January 1, 2012.
Certain provisions in the 2010 Small Business Jobs Act and the HIRE Act have also been extended. The carryback period for the small business credits has been extended from one to five years. The Small Business Act also increases the amount of deductible start-up expenses from $5,000 to $10,000. Moreover, the HIRE Act included a “Worker Retention Credit” of $1,000 or 6.2% of wages paid by the employers to the employee for employers who qualify by hiring and retaining a previously unemployed worker on the payroll for a consecutive 52 weeks. These available credits could provided a much needed boost for your business!
Meanwhile, a few revenue raisers did pass such as the Health Care and Education Reconciliation Act, which imposes additional Medicare taxes on higher-income individuals. However, these changes will not be in effect until after December 31, 2012. Luckily, some other revenue generating bills managed to lose momentum in 2010. For example, the Senate rejected a bill that would impose self-employment payroll taxes on s-corporation pass-through income for an s-corporation engaged in a service business. Thankfully, the lobbying efforts against these bills thwarted the progress.
Due to the active tax law climate in 2010, these provisions are subject to change. We will be sure to keep you up to date to be green in 2011!
