Our firm has been preaching doom and gloom all year regarding higher tax brackets, alternative minimum tax affecting 20 million people, and tax credits being cut back. We can breathe a sigh of relief as President Obama decided to grant us an early Christmas gift by giving us some much needed tax relief by implementing tax cuts.
Most of Obama’s package is just extending the “middle class” tax cuts which Bush put into place two years ago. It will extend lower rates for taxpayers at every income level, lower taxes on capital gains and dividends, marriage penalty relief, and more generous child and education tax credits.
The alternative minimum tax “patch” is back. Bush had put a band-aid on this problem two years ago and this band-aid has now been extended by Obama. This will spare millions of people from a significant tax increase from the alternative minimum tax in 2010 and 2011.
Social Security tax for employees is going down 2%. This is geared to help stimulate the economy by putting a little extra money in people’s paychecks.
There is now a lower tax on wealthy estates for 2011 and 2012. Under the provision, the first 5 million dollars are exempt from estate taxes, and anything above the exemption will be taxed at 35%.
A temporary extension has been granted on several business and individual income tax breaks which were set to expire this year. This includes the deduction for out-of-pocket expenses by teachers and an itemized deduction for sales tax paid if greater than state income taxes.
Obama increased depreciation and expensing for capital investments by businesses.
There is a 13-month extension of federal jobless benefits for people who have been unemployed for long periods of time.
These changes will cost the government $855 billion dollars with the tax cuts, lower payroll taxes, and extend unemployment. All of these breaks will support consumer spending while the economy is weak. If you have any questions on any of this information or your income taxes feel free to give us a call at (970) 482-6947 or e-mail info@ftcollinscpas.com.