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How the New Tax Bill Will Affect Us By Ken Little
T
ax season means it’s time to consider financial strategies for 2011. Several Rochester certified public accountants offered insights on the recent federal tax legislation, and what 55-and-over taxpayers should be aware of. Genie Ackerly McKeown, a CPA and certified financial planner with Conlon & Co. CPA’s in Rochester, said that the Congress finally dealt with the now-expired Economic Growth and Tax Relief Reconciliation Act of 2001 — also known as EGTRRA — and all of the tax relief that it contained. The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 was signed into law in December. The measure resolved uncertainty over tax legislation for the immediate future but after 2012, “Tax regulations are once again completely up in the air,” McKeown said, creating “a very unfriendly environment for both personal and business tax and financial planning.”
‘Significant Changes’ “Many significant changes that will affect individuals have resulted from passage of the 2010 Tax Relief Act,” she said. Perhaps the one affecting the broadest number of individuals is the extension of the EGTRRA tax rates, McKeown said. Many older Americans continue working to make ends meet. The package includes a 2 percent reduction in the Social Security payroll tax in 2011,
from 6.2 percent to 4.2 percent, for taxable wages up to $106,800. Another area receiving considerable publicity was the federal estate and gift tax. McKeown said that due to the lack of action by Congress, the federal estate tax was allowed to b e abolished in 2010 and the preEGTRRA 55 percent maximum estate tax rate and $1 million individual exclusion were scheduled to be revived in 2011. The 2009 maximum estate tax rate had been 45 percent, with a $3.5 million exclusion. The 2010 Tax Relief Act provides temporary relief through 2012 from the return of the pre-EGTRRA estate tax and addresses the 2010 estate tax question, she said. The 2010 Tax Relief Act revives the estate tax in 2010 through 2012, after which it will expire. The new maximum estate tax rate is now 35 percent, and the exclusion amount is $5 million per person. “The 2010 Tax Relief Act also reunifies the gift and estate tax that had been decoupled by EGTRRA, as a result, after 2010, lifetime gifts can now be made of up to $5 million without incurring a gift tax,” McKeown
said. “The EGTRRA lifetime gift tax exclusion had been $1 million. The annual gift tax exclusion remains $13,000 per donor in 2011.” A new development in the tax act provides for “portability” between spouses of the estate and gift tax exclusion, she added. A surviving spouse will be able to elect, on a timely filed estate tax return, to take advantage of the unused portion of the predeceased spouse’s estate and gift tax exclusion, McKeown said. If a predeceased spouse has an unused estate and gift tax exclusion of $3 million, a surviving spouse with a $5 million unused exclusion could March / April 2011 - 55 PLUS
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