Khaas Baat : A Publication for Indian Americans in Florida



On Dec. 17, 2010, President Barack Obama signed in to law HR 4853  the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. This legislation, negotiated by the White House and select members of the House and Senate, provides for a short-term extension of tax cuts made in 2001. It also addresses the Alternative Minimum Tax (AMT) and Estate, Gift and Generation-skipping Transfer taxes.

Two-year extension of all current tax rates through 2012;
* 2-year tax rates extension at 10, 25, 28, 33 and 35 percent;
* 2-year extension of reduced 0 or 15 percent rate for capital gains and dividends;
* 1-year reduction of Social Security Payroll Tax for both employees and the self-employed by 2 percent;
* 2-year estate tax exemption of $5 million for an individual with a top federal rate of 35 percent. 


Reductions in Individual Income Tax Rates through 2012
* Income brackets remain 10, 25, 28, 33 and 35 percent
* Capital gains and dividend rates remain at 0 or 15 percent
* Repeal of the Personal Exemption Phase-out (PEP)
* Repeal of the itemized deduction limitation (Pease limitation)
* Marriage penalty relief
* Expanded dependent care credit
* Child Tax Credit
* Earned income tax credit

Education Incentives Extended Through 2012

* Expanded Coverdell accounts and definition of education expenses
* Expanded exclusion for employer-provided educational assistance of up to $5,250
* Expanded student loan interest deduction
* Exclusion from income of amounts received under certain scholarship programs
* American Opportunity Tax Credit of up to $2,500 for tuition expenses
* 30-percent credit for energy-efficiency improvements to the home (IRC section 25C)
* Deduction of state and local general sales taxes
* Parity for employer-provided mass transit benefits
* Contributions of capital gain real property for conservation purposes
* Deductibility of mortgage insurance premiums for qualified residence
* Above-the-line deduction for certain expenses of elementary and secondary school teachers.

Alternative Minimum Tax (AMT) Relief

* The legislation increases the exemption amounts for 2010 to $47,450 (individuals) and $72,450 (married filing jointly) and for 2011 to $48,450 (individuals) and $74,450 (married filing jointly). 
* It also allows the nonrefundable personal credits against the AMT.

Temporary Estate Tax Relief and Modification of Gift and Generation-skipping Transfer Taxes

* Higher exemption, lower rate. The legislation sets the exemption at $5 million per person and $10 million per couple and a top tax rate of 35 percent for the estate, gift and generation-skipping transfer taxes for two years, through 2012. The exemption amount is indexed beginning in 2012. The proposal is effective Jan. 1, 2010, but allows an election to choose no estate tax and modified carryover basis for estates arising on or after Jan. 1, 2010 and before Jan.1, 2011. The proposal sets a $5 million generation-skipping transfer tax exemption and 0 percent rate for the 2010 year.
* Portability of unused exemption. Under current law, couples have to do complicated estate planning to claim their entire exemption. The proposal allows the executor of a deceased spouse's estate to transfer any unused exemption to the surviving spouse without such planning. The proposal is effective for estates of decedents dying after Dec. 31, 2010.
* Reunification of estate and gift taxes. Prior to the 2001 tax cuts, the estate and gift taxes were unified, creating a single graduated rate schedule for both. That single lifetime exemption could be used for gifts and/or bequests. The proposal reunifies the estate and gift taxes. The proposal is effective for gifts made after Dec. 31, 2010. 

Extension of bonus depreciation for taxable years 2011 and 2012

* Small Business Expensing: increase in the maximum amount and phase-out threshold under section 179. Sets the maximum amount and phase-out threshold for taxable years 2012 at $125,000 and $500,000 respectively, indexed for inflation. 

Temporary Employee Payroll Tax Cut

* The legislation creates a payroll/self-employment tax holiday during 2011 of 2 percentage points. The employer's share of the payroll tax remains unchanged. This means employees will pay only 4.2 percent on wages and self-employed individuals will pay only 10.4 percent on self-employment income up to $106,800. The Social Security trust fund is made whole by transfers from the general fund.

Satya Shaw, CPA, MBA, of Shaw Tax Advisory Group is an investment advisor representative. He can be reached at (o) 813-960-7429, (c) 901-550-2920 or email satyashawcpa@aol.com



By Kamlesh H. Patel, CPA

After years of uncertainty, the new 2010 Tax Relief Act revamps the estate tax rules, but the fix is only temporary. Absent further legislation, the new law changes are scheduled to "sunset" after 2012.

Old rules: Under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), the estate tax exemption gradually increased from $1 million to $3.5 million in 2009, while the top estate tax rate decreased from 55 percent to 45 percent. Among other provisions, EGTRRA separated the estate and gift tax systems, so the maximum lifetime gift tax exemption remained at $1 million.

Next, the estate tax was repealed for 2010, but was scheduled to return in 2011 at pre-EGTRRA levels. Also, EGTRRA replaced the rules allowing heirs to receive a step-up in basis on inherited assets with modified "carryover basis" rules for decedents dying in 2010. A surviving spouse could benefit from exemptions of up to $3 million ($1.3 million for non-spouse beneficiaries).

New rules: For 2011 and 2012, the estate tax exemption increases to $5 million, while the top estate tax rate is set at 35 percent. During this time, exemptions are portable, so a surviving spouse's estate may use an unused portion from a deceased spouse's estate. The estate and gift tax systems are reunified with a $5 million lifetime gift tax exemption. Also, the rules allowing heirs a step-up in basis are reinstated.

Finally, an executor may choose to apply the old EGTRRA rules or the new Tax Relief Act rules to the estate of a decedent dying in 2010.

Estate planning may be even more complicated than before. Nevertheless, you might increase gift-giving to family members to benefit from the higher lifetime gift tax exemption. It’s also advisable to have estate planning documents reviewed and updated to reflect the latest changes.

Check the rules for deducting home-office expenses
If you work at home, you’d probably like to take a tax deduction for your home office. Here’s an overview of what qualifies.
The first requirement is that you have a part of your home that you use regularly and exclusively for business purposes. It doesn’t have to be a separate room, but it must be a clearly defined area. The exclusive use is important. The area must be reserved only for business use; if you also use it for personal activities, it won’t qualify. The only exceptions are if you store business samples or inventory at home, or if you run a home daycare business. The other requirement is that your home office be any one of the following:


In investing, it’s not what you make that counts, it’s what you keep. We’ve all heard that a million times. But with today’s lower investment return rates, it becomes more important than ever. You don’t want to drag down your investment returns with taxes that you could avoid. Tax-efficient investments are those that attempt to minimize tax liability while at the same time maximizing returns. They include the following:

Kamlesh H. Patel, CPA, can be reached at (813) 949-8889 or e-mail kpaccounting@verizon.net or kpinsurance@verizon.net.



By Seema Ramroop

More and more employers are offering defined contribution 401(k) retirement plans to their employees. This popularity may be attributed to the fact that 401(k) plans are generally less costly for employers to maintain than traditional defined benefit pension plans.

A 401(k) plan allows participating employees to elect to defer a percentage of their pay each month into the plan, up to a 2011 maximum of $16,500 on a pre-tax basis. Participants age 50 and older may make “catch up” contributions of up to $5,500 in 2011. The amount may increase by $500 periodically based on the cost of living increases.

In addition, many employers match employee salary deferrals in some way. Employer contributions, along with those of the employee, are placed in a special retirement account for the employee where they have the potential to grow on a tax-deferred basis until retirement. Plan participants choose how they want to allocate their assets among the investment choices offered by their plans. Employees’ contributions are always their own, and employer matching funds become vested (owned by the employee) after remaining in the plan for a specific number of years.

Some of the advantages of contributing to your company’s 401(k) plan include:

Seema Ramroop, financial advisor, Morgan Stanley Smith Barney, can be reached at seeseema.ramroop@mssb.com or call (727) 773-4629.




April 15 has long been considered a date to avoid. Wouldn’t it be nice if you could do something to lower your federal income tax burden instead of mailing a big check on April 15? With a traditional Individual Retirement Account (IRA), you may be able to do just that.

A contribution of the 2010 maximum of $5,000 by April 18, 2011 could reduce your taxable income, making your federal tax burden less for the year. If you were 50 or older by the end of 2010, you can add a $1,000 catch-up contribution to potentially reduce the tax burden even more. If you already have a traditional IRA, plan to make a contribution by the April 15 deadline. If not, talk to a financial professional as soon as possible to start one.

There are restrictions governing who may deduct contributions to a traditional IRA. If you don’t qualify for a traditional IRA deduction, consider a Roth IRA. You won’t get the federal tax deduction now, but qualified withdrawals can be made free of federal income tax during your retirement years.

Either way, having a plan for retirement is important. You owe it to yourself to make the best plan as soon as possible.

Adi Khorsandian, a State Farm agent providing insurance and financial services, can be reached at (813) 991-4111 or visit www.adikinsurance.com

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