On December 17, 2010, President Obama signed into law a two year extension of former President Bush’s tax cuts that were set to expire at the end of this year. Remaining in effect till the end of 2012 are all of the Bush-era reductions on income and capital gains taxes. A fix to the estate tax, which temporarily expired this year, was also a hot topic between the Republicans and Democrats. The Republicans won this battle, with a reduced top rate of 35% next year, the lowest rate since 1931, and applies on estates larger than $5 million per person. For a married couple with the simplest of planning, that means estate under $10 million can be made free from estate tax. The Democrats had wanted the top rate to be 45% and the exemption to be applied after $3.5 million per person. This reduction is sparking fears in the non-profit community that charitable giving may drop substantially if there is no longer a tax benefit for the contributions.
Employers will benefit with deduction rules which allow businesses to write off 100% of certain capital investments made from September 9, 2010 through the end of 2011, instead of over the investment’s useful life. Employees get a 2 percent reduction in their payroll tax for the next year, which will mean more money into their pockets every week. This is a benefit that will positively affect sole proprietors and small business owners as well, and may require a rethinking of the traditional bonus vs. dividend analysis made during the year. The plan also continues extended unemployment insurance benefits through 2011.
Experts estimate the total cost of the tax cuts to be $858 billion over the two year life of the extension.
The attorneys to Danziger Shapiro & Leavitt, P.C. have a long-established record of advising businesses and business owners on issues related to tax planning and corporate structure. If you’d like more information about the tax changes, or if you’d like to discuss other concerns about your own business, please call our office to set up a consultation today.