Q: On December 16, 2010, a new tax bill was passed by the House and Senate. What does this mean for dividends and capital gains?
A: Capital Gains and Qualified Dividends tax rates will be spared from going up as the tax cuts created under the Bush Administration were set to expire. The capital gains and dividend tax rate will generally be 15% for 2011. Under the sunset, capital gains were slated to rise to 20%, and dividends were set to go to the ordinary income rate, which for some could have been 39.6%.
Q: As you have discussed in the past, the estate tax law was set to expire as well. Has Congress finally acted?
A: At nearly the last minute, Congress has included in the new tax bill, a provision lifting the estate tax exemption from what was slated to be $1,000,000 to $5,000,000. As well as with the old exemptions, this exemption can be combined with the use of a trust between spouses to result in a combined effort of $10,000,000.
Q: The deduction known as Section 179 has been a central part of tax law in the past decade. Does the new tax law affect Section 179?
A: The new tax bill extends Section 179 deductions of $500,000 into tax years 2011 and 2012 as well. Those looking to invest in new equipment may take an immediate expense of $500,000 on equipment purchased in the year of purchase. This has the beneficial effect of reducing the taxpayer’s income substantially.
By: Basi & Basi at the Center for Financial, Legal and Tax Planning for Transworld M&A Advisors