5 FAQs About Tax Law Changes for 2010-11

Are your federal taxes going up in 2011? Probably not, if you're a low- or middle-income filer. Our forecast is that Congress will extend the Bush tax cuts for all but the highest earners, those individuals making more than $200,000 a year and couples with annual incomes of more than $250,000.

Here are four more tax-planning queries on readers' minds:

When will Congress act on the lapsed estate tax?

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Answer: Later rather than sooner. Senate Democrats just blocked a vote on a bipartisan plan that would allow a choice for 2010: Estates could use the rules now in effect and pay no estate tax, but heirs can exclude no more than $1.3 million of gain when the inherited assets are sold, plus an extra $3 million for surviving spouses. This rule would increase the tax due on the assets’ sale. Or estates could use 2009’s rules -- a $3.5-million exclusion with a 45% rate, and the basis of inherited assets would be the date-of-death value.

Over the next 10 years, the plan would decrease the estate tax rate in steps to 35%, and the exemption would rise to $5 million. With questions on the constitutionality of retroactively reinstating the tax growing each day that lawmakers delay action, the prospects improve that some form of this proposal will be revived by year-end.

What are the odds for the SECA tax hike on personal service S firms?

Answer: Poor, in the short term. A proposal to have owners of such firms start paying SECA tax in 2011 on all profits ran into stiff opposition in the Senate. The revenue raiser was being used to offset the cost of extending popular tax breaks that have expired, such as the R&D tax credit and deducting state sales taxes in lieu of income taxes.

It looks more and more likely that the tax hike will have to be dropped from the bill. But the provision is likely to resurface in the future, when Congress begins work on revamping the income tax system. That could occur as early as next year.

Will Congress restore the break for direct IRA payouts to charity for 2010?

Short answer: Yes. This easing allows seniors who are 70½ and older to make donations of up to $100,000 a year from their IRAs. Payouts are neither taxed nor deductible. Thus, the withdrawals do not trigger the income based phaseouts of tax breaks, such as the 7.5%-of-AGI offset for medicals. Final action will come later this year.

How about a suspension of required minimum distributions for 2010?

No -- now that the market has recovered from its lows in the spring of 2009, lawmakers won’t extend 2009’s waiver of mandatory withdrawals for those age 70½ and up.