The new tax law extends the Bush-era individual and capital gains/dividend tax cuts for all taxpayers for two years and provides for a number of other tax breaks, including: an AMT “patch,” a one-year payroll tax cut, 100% bonus depreciation through 2011 and 50% bonus depreciation for 2012, and a top federal estate tax rate of 35% with a $5 million exclusion. As described below, a number of changes increasing taxes or reducing deductions and exemptions were schedule to take effect in 2010 if Congress had not acted before year end.

FEDERAL ESTATE, GIFT & GENERATION SKIPPING TRANSFER TAX

The 2010 legislation reinstates the estate tax for decedents dying after December 31, 2009 through December 31, 2012, but at a significantly higher applicable exclusion amount and lower tax rate than had been scheduled under prior law. The maximum estate tax rate is 35% with an applicable exclusion amount of $5 million. However, for estates of decedents dying after December 31, 2009 and before January 1, 2011, an option to elect not to come under the revived estate tax is available (no estate tax and modified carryover basis rules).

For estates of decedents dying after December 31, 2010 (and through December 31, 2010), the new law provides for transfer between spouses of the estate tax applicable exclusion amount. Generally, this would allow a surviving spouse to elect to take advantage of the unused portion of the estate tax applicable exclusion amount of his or her predeceased spouse, which has never been the case under prior law.

The state death tax credit/deduction has been revived for decedents dying after 2010 (and through 2012), and the provisions of prior law affecting qualified conservation easements, qualified family-owned business interests, and the installment payment of estate tax for closely-held businesses have been continued. for purposes of the estate tax. Finally the new law gives estates of decedents dying after December 31, 2009, and before the date of enactment, extended time (generally nine months) to perform certain acts, including the filing of any return and the making of any payment.

Under the new law, for gifts made in 2010, the gift tax is computed using a rate schedule having a top tax rate of 35% and an applicable exclusion amount of $1 million. For gifts made after 2010, the gift tax is again coordinated with the estate tax with a top gift tax rate of 35% and an applicable exclusion amount of $5 million. The generation skipping transfer tax exemption amount and tax rate are based on the applicable exclusion amount for estate tax purposes, $5,000,000 (with a GST tax rate of zero% for 2010) and with a GST tax rate thereafter equal to the highest estate and gift tax rate in effect (35% for 2011 and 2012).

INCOME TAX RATES, DEDUCTIONS, EXEMPTIONS & CREDITS

The new law extends the prior individual rates of 10, 15, 25, 28, 33 and 35% for two years through December 31, 2012. The income tax rate schedule used by estates and nongrantor trusts (15, 25, 28, 33 and 35%) also has been extended for two years. Qualified capital gains and dividends will continue to be taxed at a maximum rate of 15% (0% for taxpayers in the 10 and 15% income tax brackets) for 2010 and through December 31, 2012. The beneficial provision regarding alternative minimum tax have also been renewed.

The limitation on the total amount of a higher-income individual’s otherwise allowable deductions and the personal exemption phaseout for taxpayers with incomes over certain thresholds have both been repealed for 2010 and through December 31, 2012. Relief from the so-called marriage penalty was also extended. Several tax credits which were to expire have also been renewed through December 31, 2012 - the $1,000 child tax credit, the earned income tax credit, the adoption credit (and the income exclusion for employer-paid or reimbursed adoption expenses), the dependent care credit, the employer-provided child care credit and the education credit. The energy efficiency credit for certain improvements to a qualified personal residence has been extended to 2011, but at a reduce level.

Certain other deductions or benefits that would have expired, have also been continued - the mortgage insurance premium deduction, the student loan interest deduction, the education savings account deduction, exclusion of qualified scholarships income, the state and local sales tax deduction, the higher education tuition deduction, the teacher’s classroom expense deduction, charitable contributions of IRA proceeds, charitable contributions of appreciated property for conservation purposes, and a number of other charitable contribution provisions.

Finally the new law the employee share of the OASDI portion of Social Security taxes from 6.2% to 4.2% for wages earned in calendar year 2011 up to the taxable wage base of $106,800. Self-employed individuals would pay 10.4% on self-employment income up to

the threshold.

INCENTIVES AFFECTING BUSINESSES

Bonus depreciation is increased from 50% to 100% for qualified investments made after September 8, 2010 and before January 1, 2012 and 50% bonus depreciation is available for qualified property placed in service after December 31, 2011 and before January 1, 2013. Certain long-lived property and transportation property is eligible for 100% expensing if placed in service before January 1, 2013. Certain other credits and deductions are extended by the new law through December 31, 2012 - additional refundable credits (research or minimum tax credits) in lieu of bonus depreciation, Code Sec. 179 expensing (for 2012), the research tax credit (for 2010 & 2011), exclusion of gain from qualified small business stock to non-corporate taxpayers, employer-provided transit benefits, the Work Opportunity Tax Credit, as well as many other existing targeted credits and benefits.