Happy Holidays, New Tax Legislation Update.

Seasons greetings.

Its been ten days and the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (2010 Tax Relief Act) is now on the books, with numbers that were similar to what was leaked before it was signed. Here is a synopsis of what the new legislation means:


Income tax: extension of the Bush Tax cuts until the year of 2012 ( rates of 10, 15, 25, 28, 33 and 35). 


Capital Gains/Dividends: The maximum rate will be capped at 15 percent (zero percent for taxpayers in the 10 and 15 per- cent income tax brackets) for 2010, and will extend until the end of 2012. 


Estate Tax:  A new estate tax regime, with 35% top rate and and $5 million applicable exclusion amount is in place until the end of 2012. The new law also allows portability between spouses: if one spouse does not use all $5 million, the estate can elect to allow the surviving spouse to use the rest upon their death. 


For those who passed during 2010, Congress gives you two options: 


1. Apply the new 35% and $5 million exclusion amount and receive "stepped up" basis treatment (this means assets like your house, stocks, etc. are valued at the date of death as opposed to their original purchase value, which can mean a huge tax savings assuming the assets have increased in value), or


2. Pay no estate tax, but your assets are allowed only a $1.3 million basis "step up," ( with the rest of your assets being subject to the carry over basis rules (assets are valued at the lesser of the decedent’s basis or the fair market value of the property on the decedent’s death).


Gift Tax: for gifts in 2010, the gift tax is limited to a $1 million exclusion amount, but after 2010 it is re-unified with the estate tax, for a unified $5 million amount. 


Generation Skipping Tax: The GST remains at a 0% rate for 2010 with a $5 million exclusion amount, and starting in 2011, the GST unites with the highest estate and gift tax rates (35%). 




Those are the highlights. There is a lot more to the legislation, but those are the big talking points for now.  More to come. 


Obama to act on Estate Tax

News is slowly leaking out that the recent Obama vs. the Republicans tax talks are going to include provisions for a new estate tax with cheaper rates and a larger exemption amount (35% top rate, and $5 million exemption amount).

Great news if you are a high net worth individual, but also if you were a small business owner or were concerned about paying any estate tax.

What will this mean for planning, gifting, and wealth management? Stay tuned.


2010 is ending...What to do?

The end of 2010 marks the end of the great no estate tax windfall. From "the boss" of the New York Yankees to one of Texas' richest energy barons, those "lucky" enough to die this year were able to protect their fortunes from Uncle Sam's "death tax."

The estate tax returns on January 1, 2011 with a vengeance. The $3.5 million exemption and 45% rate that was in place in 2009 will return to the 2001 levels of $1 million (indexed for inflation) and 55% when EGTRRA sunsets on the coming New Years Eve.

This is complicated, so what does it mean for you?

At year end, its always a good time to revisit your finances and planning, and 2010 offers further incentive. You may have never had to worry about paying an estate tax, but the lower levels will now affect a much high number of families than before, especially small business or land owners. Even if you do not have $1 million in assets, its time for a year end checklist:

Do you have a will?

If you do have a will, when was the last time you reviewed it?

Have your goals, finances, family structure, or business changed?

If you make charitable donations of any form, are you getting the appropriate tax deductions?

Do you have a medical power of attorney, in the event you were injured and could not make decisions for yourself?

If you support family members or others, have you taken advantage of advantageous taxable gifting regimes expiring at year end?

If you have elderly relatives or friends, are they receiving competent healthcare, and are they taking advantage of government benefits?

Many of these questions have simple, inexpensive answers that can lead to significant savings and headache prevention in the future. Its never to early to plan for tomorrow, and the end of the year is a great time to reflect, regroup, and reorganize.