Last Minute Tax Changes Pushed Through Congress

Congress has decided to help keep the IRS busy during the Christmas holiday by passing last-minute tax changes for the 2010 tax year. These changes cover a variety of areas and will impact almost all Americans, from large corporations to mom and pop stores, and even to the average employee.

Businesses large and small will benefit from enhanced depreciation rules regarding purchases of new equipment. For certain new assets placed into service between September 8, 2010 till December 31, 2011, businesses will be able to take 100 percent depreciation, without limits, in the first year of service. Working Americans will see an increase in their paychecks due to the reduction in the Social Security payroll tax. The current rate for employees of 6.2 percent is being lowered to 4.2 percent. Self-employed people will also see the 2 percent reduction, as it will be reflected in the lowering of self-employment tax to 10.4 percent for the Social Security part. This change is only for 2011.

Also in the bill was the continuation of the current tax rates for both ordinary income and qualified dividend and long-term capital gains rates. This will keep the top tax bracket at 35 percent for ordinary income and 15 percent for qualified dividends and long-term capital gains. The Alternative Minimum Tax (AMT) patch was also passed which will keep several million Americans from having to pay the AMT tax and filing more forms with their tax returns.

In addition, the usual extension of certain deductions and credits was passed for the 2010 and 2011 tax years. One of the more popular deductions with our friends in Washington State is the option to deduct state and local sales taxes in lieu of state and local income taxes; this was also extended. Depending on a taxpayer's 2009 income tax situation, this could also be a great benefit for those of us living in Idaho. Another item on the list of deductions extended was the $250 deductions for supplies purchased by school teachers was included in the extension.

The exciting news for charities and those individuals over 70 1/2, is the extension of the ability to exclude up to $100,000 per taxpayer from gross income by donating directly to a qualified charity from an IRA in 2010 and 2011. This is great news for those taxpayers who must take required minimum distributions from their IRAs. Their donations directly to charities out of their IRA is considered when calculating their required minimum distribution for the year.

These examples above just briefly highlight the across-the-board changes passed by Congress this past week. As always you should touch base with your tax professional regarding your unique situation. Merry Christmas to the IRS from Congress, don't you know they appreciate the extra work.