A number of pieces of legislation enacted during 2010 will affect returns filed this season, as will changes enacted in earlier years. The four biggest tax bills enacted in 2010 were the health care reform legislation (the Patient Protection and Affordable Care Act, PL 111-148, and the Health Care and Education Reconciliation Act, PL 111-152), the Small Business Jobs Act of 2010 (PL 111-240), and the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Relief Act, PL 111-312).

Changes Affecting Individual Returns
Itemized deductions and personal exemptions: The itemized deduction limitation is repealed for 2010 (and through 2012). This means that taxpayers can deduct the full amount of their itemized deductions in 2010. The personal exemption phaseout rules also do not apply in 2010 (and through 2012).

Alternative minimum tax (AMT):
The 2010 Tax Relief Act included a patch of the AMT exemption amounts for 2010 and 2011. For 2010, the AMT exemption amounts are $47,450 for unmarried individuals and $72,450 for married individuals filing jointly. The 2010 Tax Relief Act also extended (through 2011) the ability to use nonrefundable personal credits to offset AMT (under IRC § 26(a)).

First-time homebuyer credit:
The IRC § 36 first-time homebuyer credit expired during 2010. It is available to eligible taxpayers who closed on their home purchase on or before Sept. 30, 2010 (under a binding contract in place before May 1, 2010). The closing date deadline was moved during the year from June 30 to Sept. 30 by the Homebuyer Assistance and Improvement Act.

Rollovers to Roth accounts:
The Small Business Jobs Act allows rollovers from elective deferral plans to Roth-designated accounts. If a section 401(k) plan, 403(b) plan or governmental 457(b) plan has a qualified designated Roth contribution program, a distribution to an employee (or a surviving spouse) from an account under the plan that is not a designated Roth account is permitted to be rolled over into a designated Roth account under the plan for the individual. This provision is effective for distributions made after Sept. 27, 2010. The taxable amount of the rollover must be included in gross income (although for rollovers in 2010, the taxable amount is includible in gross income half in 2011 and half in 2012).

Extended Provisions for Individuals
A number of credits and deductions that had expired for 2010 were retroactively extended by the 2010 Tax Relief Act and are therefore available for taxpayers to claim on their 2010 returns. Those available to individuals include the $250 deduction for elementary and secondary schoolteachers for purchasing classroom supplies; the state and local sales tax deduction in lieu of a state income tax deduction; the deduction for tuition and related expenses; and allowance for tax-free distributions from individual retirement plans for charitable purposes.

Changes Affecting Business Returns
The Small Business Jobs Act introduced a number of changes that may affect 2010 business returns.

Small business stock:
The act created a 100% exclusion of gain from the sale of certain small business stock under IRC § 1202. To be eligible, stock must be purchased after Sept. 27, 2010 (this provision has been extended through 2011 by the 2010 Tax Relief Act).

Section 179 expensing:
The Small Business Jobs Act increased the maximum amount a taxpayer may expense under IRC § 179 to $500,000 and increased the phaseout threshold amount to $2 million for tax years beginning in 2010 and 2011.

Bonus first-year depreciation:
The first-year 50% bonus depreciation available under IRC § 168(k) was extended for one year by the Small Business Jobs Act to apply to property acquired and placed in service in 2010 (or 2011 for certain long-lived and transportation property). This amount was then increased by the 2010 Tax Relief Act to 100% for business property acquired after Sept. 8, 2010, and before Jan. 1, 2012, and placed in service before Jan. 1, 2012 (or before Jan. 1, 2013, in the case of certain property).

Business credits:
The carryback period for eligible small business credits under IRC § 38 was extended from one to five years. The Small Business Jobs Act also allows taxpayers to use eligible small business credits to offset both regular and alternative minimum tax liability. Both provisions are effective for credits determined in the taxpayer´s first tax year beginning after 2009.

Self-employed individuals´ health insurance:
The Small Business Jobs Act allows self-employed individuals who deduct the cost of health insurance for themselves and their spouses, dependents, and children who have not attained age 27 as of the end of the tax year to take the deduction into account in calculating net earnings from self-employment for purposes of SECA taxes. This provision applies to the taxpayer´s first tax year beginning after 2009.

Startup expenses:
The Small Business Jobs Act increased the IRC § 195 deduction for trade or business startup expenses from $5,000 to $10,000 for tax years beginning in 2010. The start of the limitation on the deduction is increased from $50,000 to $60,000. So for 2010 the amount of the deduction is the lesser of: (1) the amount of the startup expenses or (2) $10,000, reduced (but not below zero) by the amount by which the startup expenditures exceed $60,000.

Cell phones:
The Small Business Jobs Act removed cell phones from the definition of listed property. Thus, the heightened substantiation requirements and special depreciation rules that apply to listed property under IRC § 280A will no longer apply to cell phones.

Extended Provisions for Businesses
A number of business credits and deductions that had expired for 2010 were retroactively extended by the 2010 Tax Relief Act and are therefore available for taxpayers to claim on their 2010 returns. These include the credit for research and development expenditures and various empowerment zone designations.

TAX RELIEF ACT EXTENDS CURRENT TAX RATES, RENEWS EXPIRING
PROVISIONS AND PROVIDES NEW INCENTIVES FOR INVESTMENT

On December 17, 2010, President Obama signed the Tax Relief, Unemployment
Insurance Reauthorization, and Jobs Creation Act of 2010 (the "Act"). The Act extends current tax rates on individuals through 2012, reinstates the estate tax with a 35% tax rate for 2011 and 2012, and extends various other expiring tax provisions that had expired at the end of 2009 or were scheduled to expire at the end of 2010. The Act provides individual alternative minimum tax ("AMT") relief for 2010 and 2011. The Act also provides for a reduction in employment taxes during 2011. This Tax Alert provides a brief summary of the principal provisions of the Act.

TWO-YEAR EXTENSION OF INDIVIDUAL TAX RELIEF

Significant provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (the "EGTRRA") and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (the "JGTRRA") were scheduled to expire at the end of 2010. The Act extends these provisions through the end of 2012. The Act also extends certain provisions of the American Recovery and Reinvestment Act of 2009 (the "ARRA").

Individual Income Tax Brackets
The Act extends the current 25%, 28%, 33%, and 35% tax brackets through 2012. Upon expiration, the brackets will revert to the previous 28%, 31%, 36%, and 39.6% rates. Prior to the enactment of the EGTRRA, individual taxpayers were subject
to a single 15% tax rate at all taxable income levels below the level at which the 28% rate applied. The EGTRRA created a10% tax rate for the lowest portion of the previous 15% tax bracket. The Act also extended through 2012 this lowest 10% bracket, which will be rejoined with the larger 15% bracket upon expiration.

Personal Exemption and Itemized Deduction Phase-Outs
The EGTRRA repealed the phase-out for personal exemptions and the overall limitation on itemized deductions for 2010 only. The Act extends the repeal of both provisions through 2012.

Capital Gain and Dividend Rates
Under changes made by the JGTRRA, the current long-term capital gain tax rate is zero for taxpayers whose capital gains would otherwise be subject to rates below 25% and 15% for taxpayers whose capital gains would otherwise be subject to rates at or above 25%. The Act extends these rates through 2012. Upon expiration the rates will increase to 10% and 20%, respectively. The JGTRRA also reduced the tax rate on qualified dividends from the otherwise applicable ordinary rates to the long-term capital gain rates. The Act extends this provision through 2012.

Marriage Penalty Relief
The EGTRRA provided marriage penalty tax relief in two forms. First, it increased the standard deduction for married taxpayers filing joint returns from 167% to 200% of the deduction for single filers. Second, it increased the range of the first three tax brackets for married taxpayers filing joint returns to 200% of that of single filers. The Act extends both of these provisions through 2012.

Child Tax Credit
Under prior law, taxpayers could claim a $500 credit for each qualifying child under the age of 17. The credit is phased out beyond a certain level of income. The EGTRRA doubled the child tax credit from $500 to $1,000. The ARRA expanded the amount of the credit that can be refunded to 15% of earned income over $3,000. The Act extends these provisions through the end of 2012.

Extension of Other EGTRRA, JGTRRA, and ARRA Provisions

Various other provisions of the EGTRRA, JGTRRA, and ARRA that would have expired at the end of 2010 have been extended through 2012 as well, including:
o Expanded dependent care credit
o Increased adoption tax credit
o Tax credit for employer expenses for child care assistance
o Expanded exclusion of employer-provided education assistance
o Exclusion from income of certain scholarship program proceeds
o Expanded contribution amounts to Coverdell education savings accounts
o Expanded student loan interest deduction
o Expanded earned income tax credit for families with three or more children
o The American Opportunity Tax Credit for tuition and related expenses

INDIVIDUAL AMT RELIEF
The Act increases the AMT exemption amount for taxable years beginning in 2010 to $47,450 for single taxpayers and $72,450 for married taxpayers filing joint returns. These amounts are increased to $48,450 and $74,450, respectively, for 2011. The Act also allows nonrefundable personal tax credits to be used to offset AMT for 2010 and 2011.

ESTATE TAX PROVISIONS
Prior Law
The EGTRRA phased out the estate and generation-skipping transfer taxes over a period of several years, with both taxes fully repealed in 2010. The EGTRRA also provided for carryover basis rules for assets passing through certain estates in 2010. In addition the EGTRRA decoupled the gift tax from the estate tax. Under the EGTRRA provisions the gift tax rate is 35% in 2010, with a lifetime credit equivalent to an exclusion of the first $1,000,000 of otherwise taxable gifts. All these provisions expire at the end of 2010, at which point the estate, generation-skipping transfer, and gift taxes would have been reinstated at pre-2001 levels. A rate of 55% would have applied to transfers subject to both the estate and gift tax, with the lifetime credit equivalent to an exclusion of $1,000,000.

Reinstatement of Estate Tax/Generation Skipping Tax
The Act reinstates the estate tax for 2010 through 2012 with a top tax rate of 35%, but with special transitional provisions in effect for 2010 only. The individual lifetime credit amount is increased to an equivalent exemption of $5 million ($10 million per couple). The carryover basis rules are eliminated beginning in 2011. For estates of decedents dying in 2010, the estate can elect to either apply the new estate tax provisions of the Act or apply the carryover basis rules of the EGTRRA and pay no estate tax. The generation-skipping transfer tax is also reinstated effective for 2010-2012 with a $5 million exemption amount for each of these years. The flat tax rate for GST transfers will be 0% for 2010 and 35% for 2011 and 2012. The zero percent tax rate for 2010 eliminates any tax on GST taxable transfers occurring in 2010. Irrevocable transfers to trusts in 2010 that have a potential for future generation skipping transfers post 2010 would be subject to the GST tax at that time depending on the inclusion ratio of the trust.

Modifications to Gift Tax
The Act reunifies the gift and estate taxes by allowing taxpayers to use their same $5 million lifetime equivalent exclusion amount against taxable gifts, as well as amounts passing through their estates, for gifts made during 2011 and 2012. The top tax rate for gifts is also set at 35% for 2011 and 2012. The top rate for gifts for 2010 remains 35% and the lifetime equivalent exclusion also remains at $1 million.

Transfer of Exclusion Amount to Spouse
The Act allows the executor of a deceased spouse to transfer any exclusion amount that is not used by the deceased spouse to the surviving spouse.

Sunset Provisions
The changes made by the Act to the estate, generation-skipping transfer, and gift taxes only apply through 2012. In 2013, the provisions prior to the EGTRRA, including the 55% maximum rate and $1 million exemption equivalent, will be reinstated.

INVESTMENT INCENTIVES

Bonus Depreciation
A bonus depreciation allowance had previously applied to certain property placed in service between January 1, 2008, and December 31, 2010. In order to qualify for bonus deprecation, the property must be (a) property to which the modified accelerated cost recovery system applies with a recovery period of 20 years or less, (b) water utility property, (c) most computer software, or (d) qualified leasehold improvement property. Original use of the property must commence with the taxpayer; used property will generally not qualify. The first-year allowance is 50% of the basis of the qualifying property, with the remaining 50% being depreciated under generally applicable rules. Taxpayers may elect not to claim bonus depreciation on a class-by-class basis.

The Act extends and expands the bonus depreciation provisions by allowing taxpayers to claim a 100% bonus allowance on qualifying property placed in service after September 8, 2010, and through December 31, 2011. For qualifying property placed in service after December 31, 2011, and through December 31, 2012, the bonus depreciation allowance will be 50% of the basis of such property. In addition, the Act allows certain taxpayers to elect to convert old AMT credits to refundable credits (within certain limitations) in lieu of taking bonus depreciation for property placed in service in 2011 or 2012. As under prior law, taxpayers must agree to depreciate qualifying property on a straight-line basis in addition to forgoing bonus depreciation.

Additional First-Year Expensing
Business taxpayers may elect to deduct the cost of certain fixed assets placed in service during the taxable year under the Section 179 "expensing" provisions. For 2010 and 2011, the allowance is limited to $500,000, but the limitation is phased out to the extent that the cost of qualifying property placed in service during the year exceeds $2 million. Within this overall annual limitation of $500,000, taxpayers could also deduct the cost of certain real property acquisitions up to $250,000 per year. For 2012 and subsequent years, the allowance would have been reduced to $25,000, with the limitation phased out if the cost of qualifying property exceeds $200,000. Off-the-shelf computer software is qualifying property for taxable years beginning before 2012.
The Act increases the allowance to $125,000 for assets placed in service during 2012, with the allowance phased out if the cost of qualifying property exceeds $500,000. The $25,000/$200,000 parameters are now scheduled to return in 2013. Off-the-shelf computer software is qualifying property for taxable years beginning before 2013.

TEMPORARY PAYROLL TAX CUT
Under current law, all employees pay 6.2% of their wages up to a certain threshold ($106,800 in 2011) as Social Security taxes (in addition to Medicare Hospital Insurance taxes). Employers pay an equal amount. Self-employed individuals pay 12.4% of their self-employment income up to the same threshold as social security taxes. The Act reduces the employee´s share of the tax to 4.2% for 2011 only. Employers must still pay 6.2%. The social security component of the self-employment tax is reduced to 10.4% for 2011 only.

EXTENSION OF EXPIRING PROVISIONS

Energy Incentives
The Act extends various energy incentives that have expired or would have expired as follows:

o Biodiesel and renewable diesel production credits are extended through 2011.
o Credit for refined coal facilities is extended for property placed in service prior to January 1, 2012.
o Credit for the construction or manufacture of energy-efficient residential homes is extended through 2011.
o Alternative fuel credit is extended through 2011.
o Deferral of gain on sales of electric transmission property from vertically integrated electric utilities to approved independent transmission companies is extended through 2011.
o Taxable income limit is suspended for purposes of depleting a marginal oil or gas well through 2011.
o Start-of-construction deadline for the cash grant in lieu of tax credit program under section 1603 of the ARRA is extended for one year.
o Per-gallon tax credits and outlay payments for ethanol are extended through 2011, as are the tariffs on imported ethanol.
o Section 45M credit for United States based manufacture of energy-efficient washers, dishwashers, and refrigerators is modified and extended through 2011.
o Section 25C credit for energy-efficient improvements to existing homes is reinstated to the rates and structure as they existed before the ARRA and is extended through 2011.
o Investment tax credit for alternative vehicle refueling property is extended through 2011.

Individual Tax Relief
The Act extends various individual tax provisions that had expired or would have expired, as follows:
o Above-the-line deduction for certain expenses of elementary and secondary school teachers is extended two years through 2011.
o Ability to deduct state and local sales tax in lieu of state income taxes is extended two years through 2011.
o Increased contribution limits and carry-forward period for the contribution of real property, including the transfer of partial interests, for conservation purposes is extended two years through 2011.
o Above-the-line deduction for qualified tuition and related expenses is extended two years through 2011.
o Tax-free distributions of up to $100,000 from an individual retirement account to a charity are allowed for both 2010 and 2011. A taxpayer can elect to treat distributions made under this provision in January 2011 as having occurred in 2010.
o Look-through of certain regulated investment company ("RIC") stock held by nonresidents for estate tax purposes is extended through 2011.
o Increase in the monthly exclusion for employer-provided transit benefits is extended through 2011.
o Refundable tax credits will be excluded from income for the purposes of means-tested benefit programs through 2011.

Business Tax Relief
The Act extends numerous business tax provisions that had expired or would have expired, as follows:
o Research and development tax credit is extended for two years through 2011.
o Indian employment credit is extended for two years through 2011.
o New markets tax credit program is extended for two years through 2011 with a maximum annual amount of qualified equity investment of $3.5 billion.
o Railroad track maintenance credit is extended for two years through 2011.
o Mine rescue team training credit is extended for two years through 2011.
o Employer wage credit for activated military reservists is extended for two years through 2011.
o 15-year recovery period for certain leasehold improvements, restaurant buildings and improvements, and retail improvements is extended for two years, for property placed in service prior to January 1, 2012.
o Seven-year recovery period for property used for land improvements and support facilities at motorsports entertainment complexes is extended for two years, for property placed in service prior to January 1, 2012.
o Special recovery period for qualified Indian reservation property is extended for two years, for property placed in service prior to January 1, 2012.
o Enhanced deduction for contributions of food inventory is extended for two years, for contributions made prior to January 1, 2012.
o Enhanced deduction for contributions of book inventories to public schools is extended for two years, for contributions made prior to January 1, 2012.
o Enhanced deduction for contributions of computer inventory for educational purposes is extended for two years, for contributions made prior to January 1, 2012.
o Election to expense mine safety equipment is extended to equipment placed in service prior to January 1, 2012.
o Provision to allow film and television producers to expense the first $15 million of production costs incurred in the United States is extended for two years, for productions commencing prior to January 1, 2012.
o Provision to allow expensing of environmental remediation costs at qualified sites is extended for two years, for costs incurred prior to January 1, 2012.
o Section 199 domestic production activities deduction for activities conducted in Puerto Rico is extended to taxable years beginning before January 1, 2012.
o Special rules for interest, rents, royalties, and annuities received by a tax-exempt entity from a controlled entity are extended for payments made before January 1, 2012.
o Treatment of certain dividends of RICs as interest-related dividends is extended for taxable years of the RIC beginning before January 1, 2012.
o Inclusion of a RIC as a qualified investment entity for purposes of the Foreign Investment in Real Property Tax Act is extended through December 31, 2011.
o Active financing exception to subpart F income is extended to taxable years of a foreign corporation beginning before January 1, 2012 (and taxable years of United States shareholders with or within such taxable year ends).
o Look-through treatment of payments between related controlled foreign corporations is extended to taxable years of a foreign corporation beginning before January 1, 2012 (and taxable years of United States shareholders with or within such taxable year ends).
o Ability of S corporation shareholders to reduce their stock basis by their share of the corporation´s basis in appreciated property contributed to a charitable organization (rather than by the amount of the deduction) is extended for two years through 2011.
o Designation of certain economically depressed census tracts as empowerment zones is extended for two years through 2011.
o Designation of certain areas within the District of Columbia as the District of Columbia Enterprise Zone is extended for two years through 2011, including the $5,000 first-time homebuyer credit for residences in the District of Columbia.
o Temporary decrease on excise taxes applied against certain distilled spirits produced or imported into the United States is extended for two years through 2011.
o American Samoa economic development credit is extended for two years through 2011.
o Work opportunity tax credit is extended four months through December 31, 2011.
o Qualified zone academy bond program is extended for one year through 2011.
o Provision that allows taxpayers with an adjusted gross income of less than $110,000 to deduct premiums for mortgage insurance as home mortgage interest is extended through 2011.
o 100% gain exclusion on qualifying small business tax enacted by the Small Business Jobs Act of 2010 is extended to qualifying small business stock issued prior to January 1, 2012.

Disaster Relief Provisions
The Act extends certain disaster relief tax provisions that had expired or would have expired, as follows:
o Time for issuing New York Liberty Zone bonds is extended for two years through 2011.
o Increased rehabilitation credit for historic structures in the Gulf Opportunity Zone is extended for two years through 2011.
o Placed-in-service date for property qualifying for additional low-income housing credits in the Gulf Opportunity Zone is extended for one year to December 31, 2011.
o Tax-exempt bond provisions for the Gulf Opportunity Zone are extended for one year through December 31, 2011.
o Temporary depreciation allowance for new property investments in the Gulf Opportunity Zone is extended for one year, for property placed in service prior to January 1, 2012.

The House approved an $858 billion extension of the Bush-era tax rates and unemployment benefits late Thursday night, a day after the Senate approved the bill, sending the bill to President Obama´s desk.

After procedural hurdles held up the vote for much of the day on Thursday, the House reconvened in the evening to settle the terms of the debate. Amid widespread dissatisfaction among House Democrats over the terms of the deal struck by President Obama and Republican congressional leaders, especially on setting the estate tax at a rate of 35 percent for estates over $5 million, they agreed to first hold a vote on an amendment by Rep. Earl Pomeroy, D-N.D., which would set the estate tax rate at 45 percent for inheritances over $3.5 million. That amendment was defeated by a vote of 233 to 194.

The House next proceeded to a vote on the bill passed by the Senate on Wednesday, and that passed by a vote of 277-148. The bill includes a two-year extension of the Bush-era income tax rates, including those for dividends and capital gains. It also extends emergency unemployment insurance for another 13 months. The bill would also lower Social Security payroll taxes by 2 percentage points from 6.2 percent to 4.2 percent for a year. Several lawmakers, however, criticized that provision, saying it would weaken the Social Security trust fund and pointing out that it would not be open to those government employees who do not pay Social Security withholding taxes.

The bill would also extend the Child Tax Credit, the Earned Income Tax Credit, and the American Opportunity Tax Credit for college tuition. It would also allow businesses to deduct 100 percent of investments in plant and equipment in the first year, and extend for two years the state and local sales tax deduction. In addition the bill would "patch" the AMT, extending Alternative Minimum Tax relief for two years to prevent the AMT from ensnaring millions more taxpayers. The bill also includes extensions of the Research and Experimentation Credit for businesses.

It also would extend a variety of popular tax breaks, including the ability of schoolteachers to expense purchases of school supplies. The bill also includes energy tax breaks for biodiesel fuel, ethanol and renewable energy sources.

During the debate earlier in the evening, many of the lawmakers expressed misgivings about the bill and its effect on the deficit, but said they felt the need to pass the legislation outweighed those concerns. Others could not bring themselves to support the bill and denounced the continuation of the Bush tax cuts for the wealthy, especially the exemption on estate taxes for inheritances below $5 million for individuals and $10 million for couples.

"I salute President Obama for getting in the bill what is in there," said House Speaker Nancy Pelosi, D-Calif. "I am sorry for the price that has to be paid by our children and our grandchildren to the Chinese government to pay for the increase in the deficit that the Republicans insisted upon."

Rep. Dave Camp, R-Mich., who is expected to chair the tax-writing House Ways and Means Committee in January when Republicans become the majority party in the House, complained that Democrats had not settled the question of the Bush tax cuts extension prior to the midterm elections.

"There is some explaining to do," he said. "Why wasn´t this issue dealt with before the election? Why didn´t the majority bring a bill to the floor before the election? Now, as Americans face these tax increases, here we are just a few short days before the end of the year, and now because there is a bipartisan compromise that incidentally passed the Senate by 81-19 there is a recognition that this is no time to be playing games with our economy. The failure to block these tax increases would be a direct hit to families and small businesses and employers and further delay our economic recovery, and for those reasons I support this."

Here is a sampling of other comments by lawmakers during the debate:
Rep. Danny Davis, D-Ill.: "I was at a meeting of CEDA, the organization in Chicago and Cook County that services low-income families, trying to figure out how to help my constituents get their homes heated because it might be snowing in Washington, but it´s cold in Chicago. The telephone rings and somebody said, `Could you take a call from the President?´ I said, `Which President?´ `Well, the President of the United States.´ I said, `Of course I´ll take it.´ I got on the phone and the President said to me, `Danny, we need to pass this bill and we need to pass it because, even though it´s cold, it´s going to get colder, and there are going to be people who don´t have any unemployment compensation benefits, and they can´t pay their heating bill.

There are going to be people who want to send their kids to college, and without the tax credits for college tuition, they won´t be able to pay the tuition.´ I said, `Yeah, but Mr. President, what about those people way up at the top that´s getting all of this money?´ He said, `Well, there might be an opportunity to reduce that,´ and I´m looking forward to voting on the Pomeroy amendment, so that we can reduce some of that money that they´re going to keep in their pocket, put it into the Treasury so that we can help the poor people in Chicago who are cold and don´t have any heat."

Rep. Linda Sanchez, D-Calif.: "Unemployed Americans desperately need their benefits extended, and I proudly voted to do so every time I´ve had the chance. This bill also contains tax cuts for hardworking families, tax cuts I voted for two weeks ago on this very floor. But this bill holds these good policies hostage to a giant handout to those who need help the least. It´s political bullying at its very worst, an affront to American working families waged by Republicans whose irresponsible decisions got us into this mess in the first place. This bill contains a radical change to the inheritance tax that will concentrate wealth and power in even fewer hands than it is now. In a country that prides itself on being a meritocracy and not an aristocracy, such a giveaway is irrational. It completely neuters our ability to invest in people and infrastructure. This bill contains tax breaks for those who make more than $250,000 a year, breaks that our country can ill afford when teachers are being laid off and libraries are being closed, when those who have been unemployed for the longest are losing their safety net and young men and women are still being asked to serve and die in Iraq and Afghanistan. The payroll tax cut is another bad idea. Not only does it make Social Security less secure, many public servants including California teachers won´t see any tax cut at all. Overall, this bill adds over a trillion dollars to the deficit while doing very, very little to create jobs, spur economic growth or invest in America´s future."
Rep. Bobby Scott, D-Va.: "The two-year cost of the bill is about the same as the 10-year cost of the health care reform bill, and at least we paid for that. We need to make tough, unpopular choices to balance the budget. Obviously letting tax cuts expire would be unpopular, but when we ever decide to get serious about the deficit, we will find that the alternatives are even more unpopular because after today´s vote, the choices will necessarily include cuts to Social Security, Medicare, education and other popular programs. If we don´t have the political will to end the disastrous Bush-era tax cuts now, we certainly won´t have that political will during the middle of a presidential election. The job creation in this bill is paltry. It´s around $400,000 a job. We can do better than that."

Rep. Peter DeFazio, D-Ore.: "What we´re about to do here today is extraordinary, and the impact will be felt by our kids and grandkids for the next 30 years. With one vote, we are going to increase the already projected record deficit for this year of $1.3 trillion to $1.7 trillion. Every penny of income foregone here tonight will be borrowed, much of it from China and some of it from our Social Security trust fund, for the first time in our history. For what? For continuing the failed economic policies of the last nine years. We´ve got these tax cuts in place today. How many jobs are they creating? But you tell me we can´t afford to invest. We can´t rebuild our nation´s crumbling infrastructure. We don´t have the money to do that. We know we can create real jobs there. We can increase the productivity of our nation. We can compete better worldwide if we invest in our infrastructure and our education system and our people, but no, we´re going to have debt-financed, consumption-driven recovery as people buy goods made in China and of course the $112 billion taken out of Social Security. And the Republicans have made it painfully clear tonight that the temporary cut in Social Security income is not temporary. They´ve said it time and time and time again. There is no such thing as a temporary tax cut. I hope the White House is listening. They´re about to spring the trap and next year they´ll say, `Oh, Mr. President, you´re going to raise taxes on every working American by making Social Security whole? You can´t do that. Oh, and by the way, we´re tired of subsidizing that program with money we´re borrowing.’ That is a horrible, horrible step."
Rep. Jeb Hensarling, R-Texas: "As I look at the legislation, it´s the classic challenge of is the glass half empty or half full. I for one have decided the glass to be half full. Mr. Speaker, clearly there are items in this legislation that I find not just empty, but frankly atrocious. Yes, there is tax pork in this legislation. There is unpaid-for extension of unemployment benefits. And Mr. Speaker, at some point I would hope the majority, soon to be minority, in this institution would realize we´ve got to concentrate on the paychecks, the paychecks. Americans want paychecks, not unemployment checks, and if we´re going to have them, they need to be paid for. And worst of all, yes, what´s happening to Social Security with the payroll tax without putting any fundamental reform on the table. And what I would say to my friends on the other side of the aisle is it is you who brought that to the table. Mr. Speaker, I made a pledge to my constituents. I told them I would fight any tax increases. I told them I would try to bring certainty to this economy because that´s what businesses need."

Rep. Steve Cohen, D-Tenn.: "To the people who die, the richest in our nation, we give them, the Steinbrenners, who died with $1.1 billion, we´ll be giving them this year a $450 million free ride, and the differences in the taxes of 35 or 45 percent, $100 million. This is wrong and that´s why I oppose the bill."

Rep. Patrick Tiberi, R-Ohio: "The road to prosperity is not through tax increases. The road to prosperity in America is not through class warfare."
Rep. Steny Hoyer, D-Md.: "The President of the United States has a responsibility to all Americans, and like every President, he can´t get everything he wants. To that extent, he´s like us. We don´t get everything we want. This bill does not represent everything I want. ... This bill, the President of the United States believes, and I believe, will have a positive effect on the economy, and I think we need that. ... I am going to vote for this bill because I think it does help the economy, but we are paying too great a price for it. ... Ladies and gentlemen, there probably is nobody on this floor who likes this bill, and therefore the judgment is, is it better than doing nothing. Some of the business groups believe it will help, and I hope they´re right. Not only do I hope they´re right, but I hope that if we pass this bill that they respond and create the jobs that we know they have the resources to do. This is a jobs bill, in my view, which is why I will vote for it. It could be a better jobs bill if we invested the money that we´re giving to the wealthiest in America in job growth. It is a bill that will help those who have been unemployed for week after week after week, and whose angst has grown and grown and grown."

Provided nothing is done by Congress on tax policy from now through the end of the year, massive tax changes will take place. The odds of Congress amending nothing are small, but our firm feels it is worth considering why Congress is highly likely to address the tax code this year: Many key provisions are scheduled to change when the year turns on January 1, 2011.

Most of the key provisions that expire at the end of 2010 originated with early 2001-03 tax breaks, often referred to as the \”Bush tax cuts.\” There were other tax changes that took place further into Bush\’s term, and President Obama has also pushed through some changes in tax law that are set to expire at the end of 2010.

The table below presents a partial list of the most relevant tax provisions scheduled to expire at the end of 2010. Note that there were some key tax provisions that technically \”expired\” at the end of 2009, but which will likely be retroactively put back into law such as the AMT patch for 2010 and the list of \”tax extenders.\” Our firm asks that you peruse the list compiled below, and call us with any questions about how this pertains to your filing for the upcoming tax year. Bush Tax Cut (2001 and 2003) Provisions Scheduled to Expire on December 31, 2010

Major Individual Income Tax Provisions

o Increase of the size of 15 percent rate bracket for married filers to double that of unmarried filers.

o Increase of the standard deduction for married filers to double that of unmarried filers.

o Reduced capital gain rates for individuals.

o Dividends of individuals taxed at capital gain rates.

o Ten percent individual income tax rate.

o Reduction in other individual income tax rates - size of 15 percent rate bracket modified to reflect 10 percent rate, and 28 percent, 31 percent, 36 percent and 39.6 percent rates are reduced to 25 percent, 28 percent, 33 percent and 35 percent, respectively.

o Child credit - increase from $500 to $1,000, expand eligibility for refundable portion of the credit, AMT relief, provide that child credit not treated as income or resources for purposes of benefit or assistance programs financed in whole or in part with Federal funds.

o Earned income tax credit (\”EITC\”) - increase in the beginning point of the phase-out range for joint returns, modification of EITC treatment of amounts not includible in income, repeal of reduction of EITC for AMT liability, expansion of math error authority.

o Repeal of the personal exemptions phase-outs (\”PEP\”) for high income taxpayers.

o Repeal of overall limitation on itemized deductions.

o Dependent care credit - increase of dollar limit on creditable expenses from $2,400 to $3,000 ($4,800 to $6,000 for two or more children), increase of applicable credit percentage from 30 to 35 percent, increase of beginning point of phase-out range from $10,000 to $15,000.

o Adoption credit and adoption assistance exclusion - increase to $10,000 for maximum credit and maximum exclusion, special needs adoptions deemed to have $10,000 eligible expenses for purposes of credit and exclusion, increase the beginning and ending points of phase-out range for credit and exclusion, the credit is allowed against AMT.

o Student loan interest deduction - increase and indexation for inflation of the phase-out ranges, repeal of the limit on the number of months that interest payments are deductible, repeal of the rule that voluntary payments of interest are not deductible.

o Education IRAs (Coverdell education savings accounts) - increase of maximum annual contribution from $500 to $2,000, expansion of definition of qualified education expenses, increase in the size of the phase-out range for married filers to double that of unmarried filers, provision of special needs beneficiary rules, contributions by corporations and other entities, and contributions until April 15th, permitted.

Estate Tax Provisions

o Modified carryover basis rules for property acquired from a decedent who dies during 2010.

o Estate tax deduction for State death taxes paid.

o Expansion and clarification of estate tax conservation easement rules.

o Temporary repeal of the estate and generation-skipping transfer taxes.

o Reduction in the maximum gift tax rate to 35 percent.

o Treatment of certain transfers in trust as taxable gifts under section 2503.

o Repeal of the qualified family-owned business deduction.

o Modifications to generation-skipping transfer tax rules regarding deemed allocations of exemption to certain transfers in trust, severing of trusts, valuation, and relief for late elections.

o Modifications to estate tax installment payment rules.
Obama Stimulus Provisions Scheduled to Expire on December 31, 2010

Major Individual Income Tax Provisions

o Making Work Pay credit.

o Refundable child credit floor amount.

o American Opportunity Tax credit.

o Earned income tax credit:
a. Credit percentage of 45 percent for three or more qualifying children;
b. Phase-out threshold for marriage penalty relief.

o Modification of AMT limitations on tax-exempt bonds.

The Small Business Jobs Act of 2010 includes quite a few tax changes. Most are business-friendly, and some of the best ones are retroactive to the beginning of this year. Here are the most important developments.

First-Year Depreciation Deductions Doubled tor 2010 and 2011
Under the old law, many small and medium-sized businesses could immediately write off most or all of the cost of qualifying new and used personal property assets (such as computers, other equipment, and furniture), as well as the cost of purchased software in the first year of ownership, instead of having to depreciate the cost over a number of years - up to $250,000 maximum. The new law doubles the maximum annual deduction (called a Section 179 deduction) to $500,000 for eligible assets placed in service in tax years beginning in 2010 and 2011. For the first time, some types of real estate improvement costs also qualify.

The Section 179 phase-out rule, which can reduce or eliminate the deduction for larger businesses, has also been liberalized. Under the phase-out rule, a company’s maximum Section 179 deduction is reduced dollar for dollar when it spends more than the applicable annual threshold on assets that would otherwise be eligible for the deduction. For tax years beginning in 2010 and 2011, the new law greatly increases the phase-out threshold to a generous $2 million (up from the $800,000 threshold for tax years beginning in 2009). Thanks to this change, far fewer businesses will be tripped up by the phase-out rule in 2010 and 2011.

Example: During the 2010 tax year, your medium-sized corporation adds $2.2 million in new and used equipment and software. Due to the phase-out rule, your company´s Section 179 deduction is reduced to $300,000 ($500,000 allowance minus $200,000 excess over the $2 million phase-out threshold). Before the new law, however, the phase-out rule would have completely eliminated your company´s Section 179 deduction.

One important point: If your business already has a tax loss for the year (or close), you can´t claim a Section 179 write-off that would create or increase an overall loss. Consult your tax professional if you think this might be an issue for your operation.

Real Estate Improvement Costs and Section 179Before now, real property improvement costs were ineligible for the Section 179 deduction. That´s no longer true. For tax years beginning in 2010 and 2011, up to $250,000 of qualified improvement costs for some types of real property -- namely, interiors of leased nonresidential buildings; restaurant buildings; and interiors of retail buildings — can be immediately deducted under the Section 179 deduction provision.

The $250,000 Section 179 allowance for real estate improvements is part of the overall $500,000 allowance. Again, watch out if your business already has a tax loss for the year.
50% First-Year Bonus Depreciation Break Extended
The new law also extends the 50% first-year bonus depreciation break for one year, to cover qualifying new (not used) assets placed in service by Dec. 31 of this year.