The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, enacted in the closing days of last year, was a substantial Holiday present for a large number of Americans, for at least the next two years. Here’s a very broad summary of what we think are its most significant sections.

Employees and self-employed workers will receive a reduction of two percentage points in Social Security payroll tax in 2011, bringing the rate down from 6.2% to 4.2% for employees, and from 12.4% to 10.4% for the self-employed. This should have already resulted in slightly larger paychecks for almost all of us. The current income tax rates (a top rate of 35% on ordinary income and 15% on qualified dividends/long-term capital gains) will not go up in 2011 and 2012.

The Alternative Minimum Tax, the “inflation-creep” vampire lurking in the closet for many homeowners and real estate owners who deduct their property taxes, will be contained by maintaining the current exemptions of $70,950 for married couples filing jointly and surviving spouses; $46,700 for single people and $35,475 for married couples filing separately. That will save nearly twenty one million Americans from owing AMT for 2010.

The new Act also extends the Bush era lower capital gains rates for two more years, giving individual taxpayers the benefit of capital gains’ preferential rates in comparison to ordinary income tax rates applicable to sales of assets held for more than one year. The current top capital gains tax rate of 15% (for taxpayers in any bracket above the 15% income tax rate) was scheduled to rise to 20% in 2011. That will not happen. Lower rates for qualified dividends (same rates as long term capital gains) are also extended through 2012. “Qualified dividends” are those received on stocks held at least 61 continuous days before the ex-dividend date-the last purchase day for collecting the dividend. For preferred stock, the required holding period is 91 days before the ex-dividend date.

Businesses will be permitted to write off 100% of their equipment and machinery purchases put in operation between September 8, 2010 and December 31, 2011. For M & E placed in service in 2012, there will be an opportunity to take 50% additional first-year depreciation. There is also an extension of the right to elect to take itemized deductions for general sales taxes in lieu of the itemized deduction for state and local income taxes.

Regarding estate taxes, the 2010 Act will eliminate estate taxes for all but about 3,500 of the largest estates and will keep the highest rate at virtually an all-time low. As many are aware, there were no estate taxes for even the largest estates of decedents who died in 2010. The sunset provisions of the Bush tax cuts, however, would have reinstated estate taxes on estates of more than $1,000,000 for singles and $2,000,000 for couples, along with a top rate of 55% (for the largest estates only) in 2011.

Instead, the new law sets a top estate tax rate of 35% and applies it only to estates which exceed $5,000,000 for singles and $10,000,000 for couples. After 2011 the exemption will be indexed for inflation. Heirs of 2010 decedents will also be entitled to elect whether to file their returns under the rules in effect in 2010 or the new rules effective this year. Some inherited assets are subject to higher capital gains tax under the 2010 rules, creating higher tax burdens for heirs who sell assets like stocks owned by decedents for many years. Consult a professional who keeps up to date on the laws, or you could be paying more taxes than necessary.

Remember that this new law was the subject of months of¬†extremely heated debate across our country, and probably resulted in scores of millions of dollars in campaign contributions to candidates who sought election and re-election on low tax platforms. Remember also that tax laws are often as fleeting as the wind. The differences between the competing tax bills in 2010 amounted to over 17 trillion dollars. Those are tax dollars that some argued were crucial to maintain and update our country’s road, track, air and port infrastructure, as well as to cover Federal expenses across the range of programs ranging from crime control to national defense.

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