You will now be able to make tax-free distributions of up to $100,000 of IRA assets to charities per year. On your tax return, you'll be able to treat donations made in January 2011 as if they were made in 2010. By giving IRA assets to charity, taxpayers don't have to claim the distributions as income, so they avoid being disqualified for other tax breaks and deductions.
Education credits and breaks will also be extended. Families of college students will be able to claim a deduction of up to $4,000 for qualified education expenses through 2011. The American Opportunity Tax Credit, which allows taxpayers to claim an education credit of up to $2,500, will be extended through 2012. Taxpayers can use only one — and both have specific income requirements.
Estate taxes rise, but not as much as they might have
Under Bush-era legislation, the federal estate tax was lowered for several years until it reached zero in 2010. Without the new law, it would have gone back to 55 percent in 2011. Instead, it will be 35 percent, with an exemption of $5 million for individuals. The new law also allows executors of 2010 estates to elect whether to use 2010 or 2011 rules — not everyone would automatically choose the zero rate of 2010 because it was accompanied by a rise in capital gains taxes on inherited securities.
This new provision, complicated as it may sound, will reduce by at least a third the number of estates subject to the tax, which was paid by only about 5,500 estates in 2009, according to Tax Policy Center estimates. The exemption was $3.5 million in that year.
In addition, the law will for the first time unify estate, gift and generation-skipping taxes so that a single $5 million exemption per individual will apply to all three.
Benefits for business
The final legislation extends for two years a federal tax credit on research and development and a separate measure allowing businesses to write off equipment expenses. Proponents say companies given incentives to buy new equipment are more likely to hire new workers to use them.
Among the other benefits extended through 2011 are deductions for expenses run up by teachers and for state sales taxes in lieu of state income taxes. Not renewed, however, was a property tax deduction for people who didn't itemize their deductions.
A range in winnings
Democrats tried to limit tax breaks for taxpayers making in excess of $250,000, but in the political compromise that brought Republican legislators into the fold, tax breaks were extended for everyone. Under the new tax tables, there will be a wide range of gains depending on income.
While the average American tax return will have a savings of $950, the figure will be $226 for those with less than $10,000 of income and $9,192 for those making more than $1 million.
Michael Zielenziger writes on business and the economy. He lives in the San Francisco Bay area.