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Federal Tax Bill
On Friday, December 17, the President signed into law H.R. 4853, the Unemployment Insurance Reauthorization and Job Creation Act of 2010. The legislation contained many tax provisions important to growers. Below is a summary of provisions contained in H.R. 4853. The complete summary and legislation text can be found here: http://finance.senate.gov/legislation/details/?id=10874ed6-5056-a032-52cd-99708697eff0

Estate Tax Relief
Tax Rate and Exemption Amount - In 2009, the estate tax exemption was $3.5 million per person and the top tax rate was 45 percent. The estate tax was repealed for 2010. It was scheduled to be reinstated in 2011 with a $1 million exemption and top rate of 55 percent. The bill sets the exemption at $5 million per person and the top tax rate at 35 percent for two years, through 2012. The exemption amount is indexed beginning in 2012. For estates passing in 2010, there is a choice of 2010 or 2011 law. In 2013, the exemption will revert to $1 million per person and the top rate will increase to 55 percent.

Capital Gains Taxes
Under current law, the capital gains tax rate for taxpayers below the 25 percent income tax bracket is zero percent. For those in the 25 percent bracket and above, the capital gains rate is 15 percent. For 2011, the rates would have become 10 percent and 20 percent, respectively. This bill extends the current capital gains rates for an additional two years, through 2012.

Individual Income Tax Rates
Under current law, the 10 percent, 25 percent, 28 percent, 33 percent, and 35 percent individual income tax brackets expired at the end of 2010. Upon expiration, the rates would have become 15 percent, 28 percent, 31 percent, 36 percent, and 39.6 percent respectively. This bill extends the lower individual income tax rates for an additional two years, through 2012.

Renewable Fuels Tax Incentives
Biodiesel and renewable diesel - The bill reinstated for 2010 and 2011 the $1.00 per gallon production tax credit for biodiesel that expired at the end of 2009.
Small Agri-Biodiesel Producer Credit - In addition, the bill extends the small agri-biodiesel producer credit of 10 cents per gallon for 2010 and 2011.
Diesel fuel created from biomass - The bill also extends for 2010 and 2011 the $1.00 per gallon production tax credit for diesel fuel created from biomass.
Blender’s Credit for Ethanol (VEETC) - The bill extends the Volumetric Ethanol Excise Tax Credit that was set to expire at the end of 2010 through 2011 at the current rate of 45 cents per gallon.
Tariff on Imported Ethanol - The bill extends through 2011 the existing 54 cent secondary tariff on imported ethanol and the related tariff on ethyl tertiary-butyl ether.
Small Producer Ethanol Tax Credit - The bill also extends through 2011 the 10 cent per gallon producer tax credit for small ethanol producers producing no more 60 million gallons of ethanol a year. The tax credit is applicable to the first 15 million gallons of production.
Excise tax credits for alternative fuel - The measure extends through 2011 the 50 cents per gallon alternative fuel credit and the alternative fuel mixture tax credits.
Alternative refueling property - The measure extends the 30 percent investment tax credit for alternative vehicle refueling property through 2011.

Alternative Minimum Tax (AMT)
Currently, a taxpayer receives an exemption of $33,750 (individuals) and $45,000 (married filing jointly) under the AMT. The bill 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).

Bonus Depreciation
Under current law, businesses are temporarily allowed to take an additional 50 percent deduction for depreciable property. The bill extends and temporarily increases bonus depreciation to 100 percent for investments after September 8, 2010 and through December 2011. For investments made during 2012 the bill provides for 50 percent bonus depreciation.

Section 179 Small Business Expensing
Under current law, a small business may deduct the cost of certain business property service rather than depreciate those costs over time. The amount that can be deducted has been temporarily increased several times so that maximum deduction for 2010 and 2011 is $500,000, with a phase-out threshold of $2 million. This bill reinstates the maximum 2007 deduction and phase-out thresholds for 2012 at $125,000 and $500,000 respectively, indexed for inflation. Without the extension the maximum exemption would have returned to $25,000.

Other Income Tax Provisions
Deduction of state and local general sales taxes - The bill extends for two years (through 2011) the election to take an itemized deduction for state and local general sales taxes in lieu of the itemized deduction for state and local income taxes.
Provision encouraging donations of conservations easements - The bill extends for two years (through 2011) the ability for farmers and ranchers to deduct up to 100 percent of their income for a donated easement and to claim the deduction over 15 years.
Above-the-Line Deduction for Education Expense - The bill extends for two years (through 2011) the above-the-line tax deduction for tuition and qualified education expenses.
Enhanced Deduction for Donated Food - The bill extends for two years (through 2011) the provision allowing all businesses (not just C Corps) to claim an enhanced deduction for donated food.
Marriage Penalty Relief - The bill extends the deduction for married couples at twice the amount for single taxpayers for two years, though 2012.

Pay Roll Taxes
Temporary reduction in payroll taxes - Under current law employees pay a 6.2 percent Social Security tax on all wages earned up to $106,800 (in 2011) and self-employed individuals pay a 12.4 percent Social Security self-employment tax on all of their self-employment income up to the same threshold. The bill reduces Social Security taxes by 2 percent for 2011. This means employees will pay 4.2 percent on wages and the self-employed will pay 10.4 percent on self-employment income up to the threshold. General tax revenues are used to replace lost income to the Social Security Trust Fund.


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