Date of Enactment - December 17, 2010

Highlights Include:

 

Estate Tax for 2011-2012
Maximum rate 35%
$5 million exemption per person, indexed for inflation ($10 million per couple and unused exemption is portable)
$5 million GST exemption
$5 million gift tax exemption.

 

Estate Tax for 2010
Can use new rules ($5 /$10 million exemption) or NO estate tax rules with carryover basis after $1.3 million basis step-up ($3 million for a surviving spouse)

 

For 2010: Gift tax exemption stays at $1 million.

 

Due date for estate tax returns for 2010 deaths: 9 months from the date of enactment (December 17, 2010)

 

What to tell your clients:
More Roth IRAs and traditional IRAs will pass estate tax free (up to $5 million per person / $10 million per couple)

 

Inherited Roth IRAs will now not only be income tax free, but also ESTATE TAX FREE (up to $5 million per person / $10 million per couple)

 

Income Tax Current (2010) Income Tax Rates Extended for 2011 and 2012

 

Top federal income tax rate stays at 35%

 

What to tell your clients:
2010 Roth conversions are more valuable - all other things being equal - tell clients to opt for the 2-year deferral over 2011 and 2012. There is no extra cost here since the rates are not increasing for those years.

 

Long-term capital gains and dividend tax rates stay at 15%

 

Charitable IRA Distributions Extended Through 2011

 

 

The new Tax Relief Act of 2010 includes an extension of the qualified charitable distribution (QCD) provision. The extension is retroactive from Jan 1, 2010 through December 31, 2011. Because it was passed so late in the year and taxpayers will not have enough time to plan for these distributions, Congress has decided that you can take the distribution in January of 2011 and have it treated as a 2010 distribution. It can also satisfy the required minimum distribution (RMD) for 2010, just in case there is still someone out there who has not taken their 2010 RMD yet. We will have to wait for regulations from IRS to see exactly how this will work. Those regulations should be issued soon since they will be needed to file a taxpayer's 2010 tax return.

 

As a reminder, only taxpayers or beneficiaries who are at least 70 ½ can make a direct transfer from their IRA to a qualified charity. The amount transferred will not have to be included in income and can be used to satisfy the account owner's RMD for the year, up to $100,000 per IRA owner. Also, there is no tax deduction for the donation. The tax savings is that the distribution is not included in adjusted gross income.

 

What to tell your clients:
If some clients have not yet taken their RMD for 2010, and want to donate that amount to a charity, they actually have until the end of January 2011 to give that distribution to the charity. If they do not want to donate the IRA distribution to charity, then the 2010 RMD must be taken by year-end as usual. If it is not timely taken, the 50% penalty on the amount not taken will apply.