The Wait Is Over!

Congress recently passed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. Now, we have some certainty regarding the immediate tax picture and can help you make better decisions regarding your tax presence. The first step of that process is to know the rules that your are following. We’re going help you with that today by providing you with highlights from the above Act.

Important Tax Rates remain the same:

Your individual income tax brackets did not move; the top bracket is frozen at 35%
Capital gains & dividends tax rates are still at a reduced rate of 0% or 15%; the same qualification parameters exists
Many popular tax credits and deductions were extended, including (among others):

· Child Tax Credit

· Earned Income Credit

· Energy Efficiency Credit

· Many popular Education related credit and deductions

Temporary modification of Estate, Gift and Generation-Skipping Transfer Tax for 2010 - 2012

There is a 35% top rate and a $5 million exemption for estate, gift and GST tax
The legislation contains an option for 2010 decedents. Executors may elect to be taxed under the 2010 rules of no estate tax (or generation-skipping tax (GST)) and with the modified carry-over basis regime in place for the sale of inherited assets.
Unused exemption may be transferred to spouse.
Exemption amount indexed for inflation beginning in 2012
Temporary Employee Payroll Tax Cut

The Act provides a payroll tax break during 2011 only. The IRS regulations state that the employee tax rate for social security tax in 2011 is 4.2%. The employer tax rate for social security remains unchanged at 6.2%. The 2011 social security wage base limit is $106,800. In 2011, the Medicare tax rate is 1.45% each for employers and employees, unchanged from 2010. There is no wage base limit for Medicare tax. Employers should implement the 4.2% employee social security tax rate as soon as possible, but not later than January 31, 2011.
Extension of Unemployment Insurance

The unemployment insurance proposal provides a one-year extension.


So, what does this mean for you and your tax planning? As the old CPA joke goes, “it depends”!!! And it truly does, each individual and/or business is unique and their tax picture should be analyzed and dealt with as such. With that said, generally speaking, this tax law extension pretty much allows you to operate as business as usual for the next 2 years in regards to your tax planning. Be diligent, involve your CPA, and if you have questions, do not hesitate to call a qualified tax professional.

Happy Holidays to you all and we here at McArthur & Company wish you a happy and prosperous New Year!!!

brad@mcarthurco.com
704.544.8429

Code Section 179-- One Big Win for Small Businesses

With passage of the Small Business Jobs Act of 2010 on September 27, 2010, Small Businesses can celebrate an extension and increase of Code Section 179 deduction ability. Specifically, for tax years beginning in 2010 and 2011, the maximum amount of deductible assets placed in service increases from $250,000 to $500,000.

What Qualifies for Code Section 179?
• Generally speaking, the same assets that always have qualified. For 2010, new assets, purchased and placed in service between January 1, 2010 and December 31, 2010 including, among others:
 Equipment (machines, etc)
 Tangible personal property used in business
 Computers
 Office Furniture
 Office Equipment

• A new group of assets are available for Section 179 depreciation this year. Out of the $500,000 limit, $250,000 may be derived from “Qualified Real Property”.
 Qualified Real Property means (1) qualified leasehold improvements with certain requirements, (2) qualified restaurant property with certain requirements, and (3) qualified retail improvement property with certain requirements.
 As you probably noted above, there are certain requirements with each of the above categories, so you should contact our tax advisors if you feel like you qualify for this new category of Sec. 179 depreciation.

In summary, a qualifying taxpayer can choose to treat the cost of certain property as an expense and deduct it in the year the property is placed in service instead of depreciating it over several years. This property is frequently referred to as section 179 property. The Small Business Jobs Act of 2010 increases the IRC section 179 limitations on expensing of depreciable business assets and expands the definition of qualified property to include certain real property for the 2010 and 2011 tax years. Under the Act, qualifying businesses can now expense up to $500,000 of section 179 property for tax years beginning in 2010 and 2011. Without the Act, the expensing limit for section 179 property would have been $250,000 for 2010 and $25,000 for 2011.
The $500,000 amount provided under the new law is reduced, but not below zero, if the cost of all section 179 property placed in service by the taxpayer during the tax year exceeds $2,000,000. The definition of qualified section 179 property will include qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property for tax years beginning in 2010 and 2011.

In our next blog, we’ll discuss how this same act addresses vehicles purchased for your business and your depreciation options. In the meantime, if you have any questions regarding this topic or any other recent tax legislation, please contact your tax advisor or our Firm directly.

brad@mcarthurco.com
704.544.8429