President Obama signed a tax bill into law yesterday (Friday) that gives us some clarity on what the tax situation will be for 2011 and 2012.  Here are the highlights of the bill:

  • Tax brackets to remain the same, with a 10% bottom rate and a 35% top rate.  Without this legislation, the bottom rate would have increased to 15% and the top rate to 39.6%.
  • A “payroll tax holiday” that reduces the amount of FICA withholding by 2% (self-employed taxpayers will see their self-employment tax decrease by 2%).  For a person making $40,000/year, this would equal an $800 savings.  (But the Making Work Pay Credit is expiring, which negates some of the savings.)
  • Another “patch” to the Alternative Minimum Tax that will help millions of taxpayers avoid this tax.
  • The capital gains and qualified dividends rates remain at 0% for taxpayers in the 10% and 15% tax brackets, and at 15% for taxpayers in the higher tax brackets. 
  • The Child Tax Credit will remain at $1,000 (it had been set to decrease to $500 in 2011).
  • You can claim dependent care expenses of $3,000 for one child or $6,000 for two or more children.  These amounts had been set to decrease to $2,400 and $4,800.
  • The expanded Earned Income Credit remains in place through 2012.
  • The credit available for energy efficient upgrades to your home remains in place through 2012 (it had been set to expire at the end of this year).
  • Extension of the American Opportunity Credit for college expenses, and an extension of the “above-the-line” deduction for college expenses.
  • Special 100% “bonus depreciation” for purchases of brand-new assets from September 9, 2010, through the end of 2011.
  • The estate tax returns with a $5 million exemption per person, and a 35% top rate, retroactive to January 1, 2010.  Estates arising in 2010 will have the option of of using these rules, or using the “old rules” of no estate tax and a reduction in the amount of increase in carryover basis.

“This blog post, along with comments that may follow, should not be considered tax advice. Before you make final tax or financial decisions, please secure a professional tax advisor to give you advice about your unique situation. To secure Jason as your accountant, please click on the ‘Services’ link at the top of the page.”