Dear Clients and Friends:
Many of us were concerned about the fate of certain federal tax incentives scheduled to expire at year-end. On December 17, 2010 President Obama signed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. It’s a bit of a mouthful to say, and a lengthy piece of legislation to read. We thought we’d share a few nuggets from it that you might otherwise miss.
The bill extends current tax rates, the 15% rate for capital gains and qualified dividends, and other provisions for another two years.
Among the popular tax extenders that were approved (through 2011) were:
- tax free distributions for charities from IRAs for qualifying individuals
- the teacher’s classroom expense deduction
- the higher education tuition deduction
- the state and local sales tax deduction
Also, the bill provides for a 2% cut in employee’s FICA for 2011 (which might explain why your paycheck increased slightly this year).
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| Large Gift Exemption Increased |
As part of the tax bill, there were substantial changes to the gift and estate tax laws. One provision not receiving a lot of press was the increase in the lifetime gift exemption from $1 million to $5 million for at least the next two years (2011 and 2012). For people with very large estates, transferring property during their lives, especially property that has the potential to appreciate in value, can save substantial estate taxes upon death. Many taxpayers that have already made lifetime gifts up to the $1 million dollar level can now make additional gifts can be made without paying gift tax. Large gifts require careful planning and execution, including the need for tax and legal professionals. Call us to help you start the planning process.
Also remember that the annual exclusion for gifts continues at $13,000 per donee. Generally, gifts at or below $13,000 do not require a gift tax return.
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Rental Property Owners |
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If you own rental property you should be aware of a tax law change which will affect you beginning January 2011. Under the provisions of the recently enacted Small Business Jobs Act, owners of property who receive rental income will be required to issue Forms 1099 to service providers (people like plumbers and painters) for payments of $600 or more during the year. Note that this is NOT the same 1099 requirement that was part of health care reform. Repeal of that requirement will not eliminate this one.
While the required 1099s won’t be due until early 2012, you need to start keeping adequate records of payments beginning Jan. 1, 2011 in order to have the information necessary to prepare accurate 1099s. You also need to obtain the name, address and taxpayer identification number of the service provider, using Form W-9 or a similar form. We will be glad to assist in preparation of the 1099′s next year. We can also provide form W-9, or you can download the form from www.irs.gov.Finally, if you use QuickBooks, you can easily track payments by vendors which will greatly facilitate gathering of this information at year end.Call us for assistance.
There is a bill coming through Congress which may repeal this legislation. However we advise you to keep careful track of your records because it’s not repealed until it’s repealed. And no one knows if or when that will happen.
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