This document summarizes the major tax legislation passed in 2010 and how it affects individuals and businesses. Key points include: - The Tax Relief Act of 2010 extended the Bush-era tax cuts through 2012, keeping income tax rates at 2010 levels. - It maintained the 15% capital gains and dividend tax rates and increased estate tax exemptions to $5 million through 2012. - Business provisions like bonus depreciation deductions and R&D tax credits were also extended through 2011. - The Social Security payroll tax was reduced to 4.2% for employees for 2011 only. Medicare taxes increased for high-income individuals starting in 2013. - Incentives like section 179 expensing were increased

1. How the New Tax Changes Affect You “Lunch and Learn” Keller Williams Training Room 11700 Plaza America Dr. Suite 150 Reston, VA 20190 January 27, 2011 1

3. Small Business Jobs Act of 2010 (“Jobs Act”) signed into U.S. law on Sept. 27, 2010.

5. Capital gains taxes,

6. Estate taxes,

7. Federal Insurance Contributions Act (FICA), and

8. Medicare.2

10. Tax Relief Act Results: rates remain at 10%, 15%, 25%, 28%, 33% and 35%, respectively in 2011 and 2012.

11. Duration: December 31, 2012.

13. Scheduled for 2011:

14. limitations that reduce itemized deductions.

15. limitations on reduced or eliminated the exemption deduction.

16. Tax Relief Act Results: removed the limitations on phase outs for higher-income individuals.

17. Duration: only extended for tax years 2011 and 2012.Notes 3

19. Tax Relief Act Results: Long term capital gains rate will remain at 15% (0% for those taxpayers in 10% and 15% income tax brackets).

20. Duration: Until December 31, 2012.

22. Tax Relief Act Results: Qualified dividend tax rate will remain at 15% (0% for those taxpayers in 10% and 15% income tax brackets).

23. Duration: December 31, 2012.

24. Ordinary dividends still taxed at individual’s ordinary income tax rate.Notes

26. Joint filers: $72,450.

28. Joint filers: $74,450.

29. Married filing separately: $37,225.Also for 2010 and 2011, many nonrefundable personal tax credits will be allowed to offset the AMT. Notes

31. Coverdell Education Savings Account – retained $2,000 contribution amount and ability to take tax-free distributions for qualified education expenses.

32. Exclusion of up to $5,250 for employer-provided education assistance, including tuition assistance for graduate school.

33. Credit for employer-provided child care facilities.

34. Retain 2,500 above-the-line student loan interest deduction.

35. Extend earned income tax credit.

36. Credit up to $2,100 for household and dependent care expenses for children under 13 and incapacitated dependents.

40. Election to claim an itemized deduction for state/local sales tax in lieu of itemized deduction for state/local income taxes.

41. Increased monthly exclusion for employer-provided transit and van pool benefits to the amount of the exclusion for employer-provided parking benefits.

42. Above-the-line deduction for qualified tuition and related expenses.

43. Adoption credit for qualified adoption expenses or exclusion of employer-provided assistance as income.Notes

45. New markets tax credit.

46. Employer wage credit for activated reservists.

47. 15 year write-off for qualified leasehold improvements.

48. 7 year write-off for motorsports entertainment facilities.

50. Tax Relief Act Results: extends the credit to employees who begin employment before January 1, 2012.

51. Does not apply to unemployed veterans and disconnected youthNotes

53. Credits for manufacturing of energy-efficient residential homes.

54. $.50/gal alternative fuel tax credit – but not for pulp.

55. Credit for U.S. based manufacture of energy-efficient clothes washer, dishwashers, refrigerators (std. modified).

56. 30% investment tax credit for alternative vehicle refueling property.Notes

58. Only applies to employee/wager earner portion of payroll tax

59. Employer portion of payroll tax will remain at 6.2%

60. Individual earning at or above Social Security cap of $106,800 will receive $2,136 tax benefit.

61. Self-employed Social Security payroll tax for 2011 will drop from 12.4% to 10.4%

62. Issue: what happens at the end of 2011?Notes

64. Only impacts Employee’s portion going from 1.45% to 2.35%.

65. There is no increase to the Employer’s Medicare Tax.

68. Be water utility property.

69. Be computer software not covered by Sec. 179 amortization rules.

70. Be qualified leasehold improvement property.Election to accelerate the AMT credit instead of claiming additional 1st year depreciation extended until 12/31/12. Notes

72. Investment-based phaseout amount will be $500,000

73. For 2010 and 2011, the figures are $500,000/$2.0 million.

74. Sec 179 maximum expensing amount was scheduled to drop to $25,000 and have investment-based phaseout of $200,000 after 2011.Off the shelf computer software will qualify for Sec. 179 expensing election if placed in service in a tax year beginning before January 1, 2013. Notes

75. 14 Estate Tax History In 2001, Congress passed Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”) with a 10-year sunset provision to overcome filibuster. Over next ten years, federal tax exemption rose from $675,000 in 2001 to $3.5 million in 2009. The tax rate dropped from 55% in 2001 to 45% in 2009. Generational skipping tax (GST) mirrors federal estate tax exemption. A number of states have either de-couple of federal estate tax regime or eliminate state estate taxes. EGTRRA maintained a gift tax rate of 35% over entire 10-year period. De-unified Gift Tax credit providing on a $1.0 million life time exclusion. In 2010, EGTRRA eliminated the federal estate tax and abolished stepped-up basis in transfers to beneficiaries upon death. In 2011, EGTRRA’s sunset provisions were set to disappear and federal estate tax would return. Tax Relief Act changes all of that. Notes

77. Tax Relief Act Results: Federal estate tax exemption, gift tax exemption and GST level rises to $5.0 and indexed for inflation.

79. Tax Relief Act Results: Estate tax rate and GST with a top rate of 35% on excess of $5.0 million (but that isn’t all – portability.)

80. Duration: For anyone dying on January 1, 2011 to December 31, 2012.

81. Portability: Legislation allows for portability of $5.0 million estate tax exclusion for married couples i.e. couples can use unused portion of predeceased spouse to shield up to $10.0 million from estate tax.

82. Issue: only get the unused exemption of last predeceased spouse.Notes

84. Tax Relief Act changes that.

85. Top Rate of 35% and a $5 million exclusion. Annual exclusion remains the same.

88. Some one with little capital gains would choose option two.Who decides: generally left up to personal representative Notes

90. Non-Probate Assets – life insurance (decedent demonstrated incidents of ownership), property owed in joint tenancy with rights of survivorship, paid on death accounts, annuities, IRA’s, 401K’s, and pension plans.

91. General Powers of Appointment Assets – property decedent held with a power of appointment to appoint decedent, creditors or estate as beneficiary.

92. Special Lifetime Transfers – gifts given within 3 years of death, retained life estate, effective at death, revocable.

93. Q-Tip Property – assets transferred to surviving spouse and passed to another beneficiary under the provisions of non-surviving spouses will.Notes

95. Charitable deduction – unlimited deduction for transfers to charitable deductions.Gifts in excess of annual exclusion (13K in 2010) use up $1.0 million lifetime exclusion and then all gifts above that amount are part of estate and taxed. Credits occur from the payment of gift taxes, foreign death taxes paid, taxes paid on prior transfers. Notes

97. Has graduated rate that can reach as high as 16%.

99. Inheritance tax - a tax imposed on the “privilege” of receiving property from a decedent's estate. Generally, imposes 10% tax on non-lineal inheriting beneficiaries.

100. Probate costs are graduated but are approximately ten cents per $100.Notes

101. 21 Income Tax Provisions Prior Notes

102. 22 Income Tax Provisions Prior Notes

103. 23 Income Tax Provisions Prior Notes

104. 24 Income Tax Provisions Prior Notes

105. 25 Income Tax Provisions Prior Notes