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Roth and Co. has an excellent roundup of the key provisions in the new tax extenders bill (HR 4297). For most people, the most important item is that the AMT “fix” has been extended for one year and indexed for inflation. Also, the capital gains and dividend cuts have been extended for two years (until 2010).

The games that the government plays with numbers are astounding to me. Quoting Roth and Co.

Corporate estimated tax games. They couldn’t possibly have done this one with a straight face. C corporations with $1 billion or more in assets will deal with bizarre estimated tax requirements in 2006, 2012 and 2013:

- The 2006 estimated tax payment installments due in July, August or September (third quarter, for calendar year taxpayers) will be 105% of the amount otherwise due for the quarter. The same installment in 2012 will be 106.25% of the amount otherwise due; in 2013, the magic number will be 100.75% of the amount otherwise due.

-In 2010, 20.5% of the third quarter installment due September 15 will be payable October 1; in 2011, 27.5% of the third quarter installment is payable in October.

The government has a September 30 fiscal year, and these rules obviously shuffle income among the fiscal years to meet some arcane budget rule, at least on paper and in a laughably phony manner.

Yeah, that’s not a nightmare at all for people trying to calculate how much to pay in estimates (and the resulting penalty calculation for underpayment). I can hear Mark Everson screaming from here. Congress did raise revenues in at least one good way. They scrapped the grandfathering of an illegal subsidy so that the EU won’t impose trade sanctions again. One might argue the obviously illegal trade subsidies should never have been in place. But it is Congress.

Other provisions that may affect you is an extension of the $100,000 small business write-off for equipment and an elimination of the income cap for conversions of IRAs to Roth IRAs.

All in all, another bill that makes January 1, 2011 D-Day for the tax code. The Tax Policy Blog lists all of the tax changes that will happen on that day.

• Individual income tax rates go from 10%, 15%, 25%, 28%, 33%, and 35% to 15%, 28%, 31%, 36%, and 39.6%.

• Child credit falls from $1,000 per child to $500 per child.

• Capital gains tax rates would revert back to 10% and 20% (depending on AGI), while they are currently at 5% and 15%.

• Dividends would once again be taxed at the ordinary income rates (see above), while today they are currently at 5% and 15%.

• After being fully phased out for tax year 2010, the estate tax would be fully reinstated with a top rate of 60 percent and a $1 million exemption.

Wow. Whomever takes over for President Bush is going to have a mess on his (or her) hands. Coming from proponents of Starve the Beast (where taxes are cut to the point Congress has to restrain spending in a reckless game of fiscal chicken) I’m sure it’s intentional that the IRC is so messed up and that there is a ticking time bomb left for a future Congress to deal with.

Technorati Tags: AMT, capital gains, dividend, small business, IRA, Roth IRA