The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 has been signed into law. Physicians, Surgeons and other high net worth individuals had been on the edge of their seats, knowing that if the Act had not been signed, tax rates could rise significantly in the New Year. However, this Act extends Bush-era tax cuts for tax years 2011 and 2012 for all taxpayers, in all tax brackets. Doctors are already faced with high premiums for their medical malpractice insurance and rising costs of managing a physician office. As a physician, the two provisions that will pose the greatest impact and savings for you are:
- The top tax rate for all individual taxpayers would remain at 35%.
- Capital gains and qualified dividends would continue to be taxed at 15%.
Other major components of the bill are a 2% reduction in the employee share of Social Security tax for 2011, and a two-year estate tax agreement. The estate tax exemption would increase to $5 million with a top tax rate of 35%, which is a far cry from the scheduled $1 million exemption and a top rate of 55%.
Other items include:
- Two-year AMT patch to keep approximately 20 million taxpayers from paying the additional tax.
- The standard deduction for married taxpayers filing jointly (and qualified surviving spouses) remains at 200% (rather than 167%) of the standard deduction for single taxpayers for 2011. Itemized deductions of higher-income taxpayers will not be reduced
- A higher-income taxpayer’s personal exemptions will not be phased out when AGI exceeds an inflation-adjusted threshold
- Unemployment benefits extended for additional 13 months on top of the current 99 weeks
- Increased bonus depreciation to 100% on purchases from September 8, 2010 through 2011
While the bi-partisan agreement hopes to create or save as many as two million jobs, the price tag is speculated at $858 billion in tax revenue. So now that the speculation has ended, we know what the next two years will hold when it comes to tax planning. Physicians and Surgeons should talk with their tax advisor about these extensions and changes to ensure they minimize their tax burden and maximize the portion they keep in 2011 and the coming years.