| The Obama Administration has proposed a 2011 | | | | For businesses, the budget proposes extending |
| federal budget intended to steer the economy | | | | the bonus depreciation deduction and the |
| toward recovery and create new sources of | | | | $250,000 ceiling on Section 179 expensing to 2010. |
| revenue to reduce our country's deficit. If | | | | Both provisions expired December 31, 2009. |
| enacted, the tax proposals in the budget would | | | | The Section 179 deduction allows qualified |
| affect individuals, businesses, and estates. | | | | property to be expensed in the year that it is |
| Individual Provisions | | | | placed in service, as opposed to being depreciated |
| Perhaps the most wide-reaching provision in the | | | | over a number of years. The maximum Section |
| budget proposal allows the maximum personal | | | | 179 deduction would remain $250,000 under this |
| income tax rate to increase from the present | | | | proposed extension. (The maximum had reverted |
| 35% to 39.6%, as had been in effect prior to the | | | | to $125,000 for 2010 under current law.) The |
| Economic Growth and Tax Relief Reconciliation | | | | bonus depreciation deduction, which allows |
| Act of 2001 (the Bush Administration tax cuts). | | | | businesses to expense 50% of the cost of |
| The 39.6% rate would apply to taxable income in | | | | qualified property, also would be extended to |
| excess of $373,650 and would be adjusted | | | | 2010 under the budget proposal. |
| annually for inflation. | | | | The budget proposes a hiring tax credit of up to |
| The president also proposes raising the maximum | | | | $5,000 for each newly-hired employee. This tax |
| tax rate on qualified dividends and long-term | | | | credit may not exceed $500,000 per employer. |
| capital gains to 20% (from the current 15%) for | | | | The budget also proposes to extend and make |
| single individuals with income over $200,000 and | | | | permanent the research tax credit. This credit, |
| for married taxpayers filing a joint return with | | | | which expired December 31, 2009, provides for a |
| income over $250,000. | | | | tax credit equal to 20% of qualified research |
| The budget proposes to benefit individuals by | | | | expenses above a base amount. |
| extending numerous tax breaks that are | | | | President Obama also revived a prior proposal to |
| scheduled to expire. One provision to be extended | | | | tax income from carried interests as ordinary |
| is the Alternative Minimum Tax (AMT) patch, | | | | income. Carried interests refer to profit interests |
| which increases the exemption from the AMT to | | | | an individual receives in entities (often hedge |
| prevent 20 million taxpayers from being subject | | | | funds), in exchange for services performed. |
| to this tax. | | | | Currently, carried interests are taxed at the 15% |
| Other provisions to be extended could include the | | | | long term capital gains rates. Under the proposal, |
| state and local sales tax deduction and the | | | | the individual receiving the carried interest would |
| tax-free charitable distribution from IRAs for | | | | be taxed at ordinary income tax rates and |
| individuals required to take IRA distributions. The | | | | subject to self-employment tax as well as income |
| state and local sales tax deduction is primarily | | | | tax. |
| beneficial for individuals who live in low- or | | | | Estate Provision |
| zero-income tax states but can also be beneficial | | | | The estate tax expired December 31, 2009. The |
| for those who made large purchases in 2010. | | | | budget proposal would reinstate and make |
| Individuals aged 70 1/2 and over would be eligible | | | | permanent the tax at the 2009 rates, providing |
| for tax-free IRA distributions of up to $100,000 | | | | for an exemption of $3.5 million per estate and |
| to qualified charities. These taxpayers would avoid | | | | imposing the tax at a maximum rate of 45%. |
| paying taxes on these distributions in exchange | | | | Although the specifics of any new tax legislation |
| for not claiming a charitable deduction on their tax | | | | to be passed in 2010 are uncertain, taxpayers |
| return. | | | | should anticipate tax increases to address the |
| Business Provisions | | | | substantial government deficits. |