Bush Tax Cuts extended two years
One of the reasons I enjoy writing this article for The Rockford Squire is they graciously allow me to write about areas other than income tax. I have taken advantage of that graciousness to write about a variety of subjects such as fishing in Canada, hunting in Marion, attending sprint car races in Iowa, and traveling with my family to various places around the United States. I do try to use those other topics to segue into the tax world. Sometimes that is a bit of a challenge.
As many of you know, I got involved in a different type of challenge this fall. I ran for election to the Rockford City Council. The campaign had its fun moments, but it was hard work also.
However, I was successful. I was elected on November 9, and have now attended two council meetings. It has been interesting. I have found that there are many activities going on in the City, including large projects such as Wolverine’s Tannery project and the 10 Mile Corridor project; smaller ones such as the extending of the Nature Trail Boardwalk and working with the Chamber of Commerce on the Santa Parade; and day-to-day activities such as keeping the snow cleared and maintaining the wells for the city water.
I am quite impressed with how Michael Young, our city manager, manages all of those projects. After discussing various topics with him and seeing him in action, it is easy to see that we are fortunate to have him as our city manager. I realize his middle name is not Solomon, the wisest man who ever lived, but Michael seems to have made and does make many correct decisions. He runs an efficient ship and has put together a great staff that works well together.
Longevity is one of the keys to being efficient and, as I found out at the staff’s Christmas party, there is much longevity at Rockford. Michael is celebrating his 15th year as our city manager. Derek Haan, Michael Miller and Chris Bedford are celebrating their 20th years. Jamie Davies, David Robinson and Jeff Dood are in their 10th years, and Greg Young is in his fifth year of working on the staff. If you see one of these people around town, give them your congratulations and encourage them to keep up the good work.
Last week, we got to see the government’s idea of longevity. It’s two years. That’s how long the Bush Tax Cuts were extended when the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 was signed into law by President Obama last Friday. By Congressional Budget Office estimates, when everything is said and done, it will add 858 billion dollars to the deficit.
Those guys and gals in Congress just can’t seem to stop spending more of our money than they have coming in. I wonder when they discovered how easy it was to just keep the printing presses running an extra hour or two.
The Act itself, however, does extend tax relief to all Americans filing a tax return, no matter what tax bracket they are in or their level of income. In addition to all of the regular Bush Tax Cuts, there were several provisions that were not part of the cuts that have also been extended.
For example, the Alternative Minimum Tax has required a “fix” at the end of the year for the last several years. Now, the bill fixes the “fix” for this year as well as for the 2011 tax year.
Tax-free distributions from Individual Retirement Accounts that are transferred directly to charities had gone away at the end of 2009. This provision has been rewritten and extended through 2011. In fact, charitable transfers during January 2011 can even be retroactively applied to the 2010 tax year.
The American Opportunity Credit, the education credit provision, is extended through the 2012 year. Under the Bush Tax Cuts, this area was called the Hope Credit. The Hope Credit was greatly expanded by the American Opportunity Credit, but was scheduled to revert to the more restrictive Hope Credit provisions at the end of 2010. Now those taxpayers with children in college can breathe a sigh of relief.
A key provision to all taxpayers who have investments is the one that extends through 2012 the favorable treatment of capital gains profits. Dividends are also granted capital gains treatment through 2012.
A final badly needed fix that was made was including Estate Tax Reform as part of this Act. The Act grants an estate tax exemption of $5,000,000 per individual taxpayer and $10,000,000 per couple. In a rather unique twist for couples, the surviving spouse can use up whatever exemption amount went unused by the first-to-die spouse. The maximum tax rate for estates in excess of the $5,000,000/10,000,000 threshold is 35%. All assets within the estate will receive a full step-up to the fair market value of the asset on the date of death. In another retroactive use of the tax laws, heirs of taxpayers who died during 2010 can choose to apply the new 2011 $5,000,000/$10,000,000 law or use the 2010 law.
Very interesting. I will guarantee that most tax professionals hope this use by Congress of retroactive provisions to previous years is not a new trend. It tends to create the type of challenge that gives us heartburn and turns our hair gray. I have enough of both of those items as it is. This is Jerry Coon signing off.
Jerry Coon is an Enrolled Agent. He owns
Action Tax Service in Rockford.
Contact Jerry at www.actiontaxservice.com.