By Jim Sloan

The media made it sound like the tax relief law passed late last year was designed to make a lot of older, rich taxpayers happy with new tax deductions and more favorable federal tax brackets.

But in reality, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 contained a lot of new and extended tax deductions and benefits for those of us just starting out with our careers and businesses.

For starters, the new law included a payroll tax cut on our federal income tax that will put about $112 billion back into the paychecks of some 155 million workers. Any employee who pays into Social Security will see their portion of FICA federal income tax drop from 6.2 percent to 4.2 percent.

For the average worker, that translates into a monthly pay increase of about $83 a month. If you have been receiving the Making Work Pay tax credit, which expired at the end of 2010, your raise will be more along the lines of $50 a month. If you earn more than $95,000 a year and weren't eligible for the Making Work Pay credit, you'll get the full 2 percentage point cut from your federal income tax, or nearly $2,000 over the course of the year.

Helping parents, college students

Another important portion of the law was the extension of emergency unemployment benefits for another 13 months. That alone gives an estimated 7 million workers a little breathing room. These are folks who are struggling to find jobs and were about to lose their benefits altogether.

For those with children, the new law also includes a tax cut for an estimated 10.5 million lower-income families. According to the Internal Revenue Service, the law also extends an earned income tax credit worth, on average, $600 for families with three or more children. It also reduces the so-called "marriage penalty" for working married couples.

The new law also extends for two years the $1,000 child tax credit on your federal income tax.

The bill also extends the American Opportunity Tax Credit, which is a $2,500 per-student, per-year tax deduction that's been helping many students and their families afford college.

Advantages for small business owners

In addition to the payroll tax cut, the new law keeps federal tax brackets from climbing. The current federal tax brackets range 10 to 35 percent, and were scheduled to jump to 15 to 39.6 percent. But the new law keeps those federal tax brackets at the lower level.

The sprawling tax bill included a variety of changes and tax deductions that could help anyone who is starting a new business. Here are some examples:

• Business can temporarily expense 100 percent of certain investments in 2011, which the government hopes will spur $50 billion in new investments this year and convince companies to hire more people.
• Self-employed workers can deduct health insurance premiums from their net earnings and reduce their self-employment tax, potentially saving up to 15.3 percent on the cost of health insurance.
• The owners of small businesses can deduct up to $500,000, up from $250,000, under Code Section 179. This should be an incentive for many businesses to invest in new equipment. Business owners can also deduct 51 cents per mile in 2011 -- up from 50 cents in 2010 -- when using their vehicle for company business.
• While workers' Social Security tax dropped to 4.2 percent from 6.2 percent, the small business owner's tax decreased from 12.4 percent to 10.4 percent.

Relief from estate taxes

If your parents were fretting about the return of estate taxes -- also known as the 'death tax' -- they can breathe a sigh of relief.

The federal income tax rate on an estate was scheduled to go up to 55 percent, with $1 million allowed to be passed on tax-free. But the new law allows $5 million of a person's estate to be passed on tax-free and the remaining estate tax rate set at 35 percent. Additionally, widows and widowers can pass along $10 million tax free if their spouse dies.

The new law only extends these estate tax breaks for two year, however, and the federal laws don't affect state estate or inheritance taxes. So if you or your parents might be affected by these taxes, it might be wise to consult an estate planner and look at bypass or family trusts as a way to avoid heavy inheritance taxes.

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