Greetings!

On December 17th the President signed into law the "Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010".  This sweeping tax package includes, among many other items, an extension of the Bush-era tax cuts for two years, estate tax relief, a two-year "patch" of the alternative minimum tax (AMT), a two-percentage-point cut in employee-paid payroll taxes and in self-employment tax for 2011, new incentives to invest in machinery and equipment and a host of retroactively resuscitated and extended tax breaks for individuals and businesses.

1. The current income tax rates will be retained for two years (2011 and 2012) with a top rate of 35% on ordinary income and 15% on qualified dividends and long-term capital gains.
2. Employees and self-employed workers will receive a reduction of two percentage points in Social Security payroll tax in 2011, bringing the rate down from 6.2% to 4.2% for employees, and from 12.4% to 10.4% for the self-employed.
3. A two-year AMT "patch" for 2010 and 2011 will keep the AMT exemption near current levels and allow personal credits to offset AMT.  Without the patch an estimated 21 million additional taxpayers would have owed AMT for 2010.
4. Key tax credits for working families that were enacted or expanded in the American Recovery and Reinvestment Act of 2009 will retained.  Specifically, the new law extends the $1,000 child tax credit and maintains its expanded refundability for two years, extends rules expanding the earned income credit for larger families and married couples, and extends the higher education tax credit (the American Opportunity tax credit) and its partial refundability for two years.
5. Businesses can write off 100% of their equipment and machinery purchases, effective for property placed in service after September 8, 2010 and through December 31, 2011.  For property placed in service in 2012, the new law provides for 50% additional first-year depreciation.
6. Many of the "traditional" tax extenders are extended for two years, retroactively to 2010 and through the end of 2011.  Among many others, the extended provisions include the election to take an itemized deduction for state and local general sales taxes in lieu of the itemized deduction for state and local income taxes; the $250 above-the-line deduction for certain expenses of elementary and secondary school teachers; and the research credit.
7. After a one-year hiatus, the estate tax will be reinstated for 2011 and 2012 with an increased applicable exclusion amount of $5 Million and a reduced top rate of 35%.  Estates of people who died in 2010 can choose to follow either 2010's or 2011's rules.
8. The gift tax is reunified with the estate tax credit at an amount equivalent to $5 Million for gifts made after 2010.  And, the estate tax exemption is "portable" thus allowing married couples dying after 2010 to pass up to $10 Million either during their lifetime or at death.

Omitted from the new law: Repeal of a controversial expansion of Form 1099 reporting requirements. Also not included: Extension of the Build America Bonds program, which permits state and localities to issue federally-subsidized municipal bonds.

The standard mileage rate for business driving will increase slightly for 2011. The rate will rise to 51 cents per mile, up a penny from 2010. Businesses with four or fewer vehicles can use the allowance, although the Internal Revenue Service may decide to waive that limit in future years. If you use the standard allowance, you must reduce the vehicles basis by the depreciation component of 22 cents per mile.

The rate for medical travel and moving will increase to 19 cents a mile in 2011, up 2 1/2 cents from 2010. However, the rate for chariatable driving will remain 14 cents per mile in 2011. The cost of parking and tolls can be claimed if you take the standard rate.

Here are some year-end tax tips for you to consider:

1.      Make charitable contributions. To qualify for a 2010 deduction, make donations by Dec. 31. Note: The charity doesn't have to have cashed a check or sent you notification by then, but the gift has to be in the mail or otherwise beyond your control by year end. (If you are worried, get proof of mailing.)

Donations of property such as old clothes or household items must be in "good used condition." Taxpayers who keep total noncash donations to $500 or less don't have to fill out IRS Form 8283. But a donation of a household item worth $500 or more may require an appraisal. See IRS publication 526 for details.

2.     Empty flexible-spending accounts. You must spend these funds before year end or else forfeit them unless your plan has a grace period. The list of reimbursable expenses is wider than many realize, extending to contact-lens solution and acupuncture.

Be warned, though: because of a change in the law, no reimbursements are permitted for purchases of over-the-counter medicines after Dec. 31, 2010 without a doctor's prescription, regardless of plan rules.

3.     Max out your 40l(k). Contributions to company retirement-savings plans like 401(k)s are due by Dec. 31. For 2010 the limit per employee is $16,500, with an extra $5,500 allowed to those 50 and older. However, IRAs may be set up and funded after year end.

4.     Make 529 college-plan contributions. Act before year end to qualify for the state tax benefit. There is no federal tax deduction, but accounts can grow tax-free.

5.     Take required IRA distributions. Congress suspended required payouts for 2009, but this year they're back for regular IRA owners over 70½ or those who have inherited accounts.

6.     Use an energy credit. The Residential Energy Property Credit expires Dec. 31. Taxpayers who spend as much as $5,000 get a credit for up to $1,500 of energy-efficient home improvements such as hot-water heaters, insulation and even certain shades, but they must be installed by year end.

7.     Make gifts. Any taxpayer may give any other taxpayer up to $13,000 a year free of tax. Using this provision, a couple with three children and six grandchildren could move $234,000 a year from their estates. Property and securities may be given as well as cash, but the asset's cost basis carries over.