On December 17, 2010, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 became law.  The Act is long and complicated.  This is a short summary of the most relevant income tax provisions included in the new legislation.

·         The 2010 tax rates for individuals were extended for two years.

·         The 15% tax (or 0% for those below the 25% bracket) on capital gains and qualified dividends were extended for two years.

·         Employee payroll taxes were reduced for 2011 from 6.2% to 4.2% on wages earned up to a threshold amount of $106,800, and the self-employment tax was set at 10.4% (reduced from 12.4%) on self-employment income up to the threshold amount for 2011.

·         The relief from the so-called "marriage penalty" is extended for two years by (1) increasing the basic standard deduction for a married couple by two times the standard deduction for an individual, and (2) increasing the 15% tax bracket for a married couple to two times the 15% bracket for a single individual.

·         The repeal of the personal exemption phase-out, and the repeal of the limitation on itemized deductions, for taxpayers having AGI above a threshold amount, is extended for two years through 2010.

·         Numerous other tax provisions were extended for two years, including:

-          The child care tax credit

-          The dependent care tax credit

-          The adoption tax credit

-          The employer-provided child care tax credit

-          The earned income tax credit

·         Numerous provisions impacting education were extended for two years, such as:

-          The Coverdell Education Savings Accounts

-          The section 127 exclusions from income for employer-provided education assistance

-          Exclusion from income for scholarships

·         The alternative minimum tax (AMT) was amended by increasing the exemption amounts for 2010 to $47,450 for individuals and $72,450 for married filing jointly, and for 2011, to $48,450 for individuals and $74,450 for married filing jointly.  In addition, the new legislation allows the offset for nonrefundable personal credits against the AMT in 2010 and 2011.

·         The Act extends for 2010 and 2011 the provision that permits tax-free distributions to charitable organizations from an individual retirement account (IRA) of up to $100,000 per taxpayer, per year.

·         The above-the-line deduction for qualified tuition and related expenses for higher education under Code section 222 is extended for years beginning before 2012 (2010 and 2011).

·         Business tax provisions:

-          Bonus depreciation:

-          For qualified property placed in service after September 8, 2010 and before January 1, 2012, a 100% first year depreciation deduction is allowed under Code section 168.

-          For qualified property placed in service in 2012, a 50% first year depreciation deduction is allowed under Code section 168.

-          Corporations may elect to take additional AMT credits in 2011 and 2012 if they agree to forego the use of bonus deprecation on qualified property placed in service during those years and use straight-line depreciation.

-          A taxpayer who invests in qualifying property may elect under Code section 179 to deduct (or "expense") the cost of qualifying property rather than to depreciate it over time.  For taxable years beginning in 2010 and 2011, the maximum amount of qualifying property that can be expensed is $500,000. The amount of the deduction declines, dollar for dollar, as the cost of the qualifying property exceeds $2,000,000.  For property placed in service during 2012, the maximum amount that can be expensed is $125,000, but is reduced by the amount of the cost of property placed in service during the year which exceeds $500,000.  The $125,000 and $500,000 amounts are indexed for inflation.

-          The new markets tax credit of section 45D is extended for two years through 2011.

-          The research tax credit is extended for two years through 2011.

-     For years before 2010, an S corporation shareholder must reduce the adjusted basis of his/her stock by his/her pro rata share of the adjusted basis of contributed property rather than the fair market value of the contributed property.  The Act extends that approach for 2010 and 2011.