Arizona Taxation

Over the last several decades it has become routine practice to provide in a married couple’s estate plan for the division of the estate of the first spouse to die into two portions which are then to be held in two separate trusts. One portion is the amount that is exempt from federal estate tax (the “exclusion amount”) and the other is the excess, if any, for which the marital deduction is claimed. The result is no estate tax on the death of the first spouse, regardless of the size of the estate. Furthermore, because the exclusion amount is kept separate from the survivor’s estate it is not taxed when the survivor dies.

Late yesterday evening the U.S. House of Representatives approved the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 1010 (Tax Relief Act of 2010), and President Obama is expected to sign it today. The following is a brief summary of the key tax provisions:

An important aspect of the the tax legislation that overwhelming passed both House of Representatives (277-148) and the Senate (81-19) and will soon become law, i.e. this afternoon, is the retroactive reinstatement of the estate tax for the estates of decedents dying in 2010.

President Obama announced a proposed bipartisan tax deal to extend the Bush-era individual income tax cuts for all taxpayers in 2011 & 2012 and extend federal unemployment benefits for 13 more months until the end of 2011.

The Wall Street Journal has a good summary of some year-end tax planning issues and strategies given the uncertainties about federal tax liabilities in 2011. Two of the points are of particular interest: capital gains/losses and 401(k) conversions.

The following infographic illustrates some of the basics associated with this complex concept.

The following two infographics compare the 1) average tax savings and 2) average tax if the Bush tax cuts are permanently extendended or extended for all but those in the wealthiest two tax brackets.

Average Tax Savings

Click on the image below to view an infographic/animation that compares the tax savings if the: 1) bush tax cuts are permanently extended or 2) they are extended, inter alia, for all but those in the wealthiest 2 tax brackets.

Average Tax

Click on the image below to view an infographic/animation that compares the 3 options currently being discussed for handling the expiring Bush tax cuts: 1) extending all the tax cuts, 2) extending the tax cuts, inter alia, for all but those in the wealthiest 2 tax brackets, and 3) allowing the tax cuts to expire completely.

Now that we are approaching the end of 2010 and Congress has not acted to “repeal the repeal” of the estate or increase the 2010 gift tax rate, the opportunity to lock in the 35% maximum gift tax rate applicable only in 2010 should be considered as a viable strategy.

During the past year and a half stock prices have risen dramatically from their lows in March of 2009, and because of the decline in interest rates, bond values have increased substantially as well. Real estate values on the other hand have continued to decline in many areas.