The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Act) signed by President Obama is expected to stimulate the economy by providing tax relief to individuals and businesses. The Act reinstates many Bush-era tax cuts that expired in 2009 and extends others that were scheduled to expire on December 31, 2010. The Act also overhauls the current estate and gift tax regime by providing generous estate and gift tax exemptions and rates for 2011 and 2012. Some of the more notable provisions of the Act affecting businesses are described below.
Income Tax, Capital Gains, and Preferential Dividend Rates. The current rates are extended through 2012.
2011 Employee Payroll Tax Cut. Effective for 2011 only, the social security tax rate is reduced from 6.2% to 4.2% and the self-employment tax rate from 12.4% to 10.4%.
100% Bonus Depreciation. The 50% bonus depreciation now applies to qualified property acquired after December 31, 2007, and before January 1, 2013, and 100% bonus depreciation applies to qualified property acquired and placed in service after September 8, 2010, and before January 1, 2012. Unlike Section 179 expensing, bonus depreciation is available to all businesses (regardless of size) and does not apply a monetary cap.
Section 179 Expensing Limits. For 2012, small businesses may elect to expense up to $125,000 (adjusted for inflation) of qualifying capital investment with a phase-out for income above $500,000 (adjusted for inflation). After 2012, the limits are reduced to $25,000 and $200,000, respectively (no adjustment for inflation).
Research Tax Credit. The Act reinstates the research tax credit, which expired December 31, 2009, for amounts paid or incurred on or before December 31, 2011.
For more information on the business tax relief provisions of the Act, see Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 – Business Tax Relief. For more information on the estate and gift tax provisions of the Act, see Federal Estate and Gift Tax Compromised Reached.