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| SEPTEMBER 2006 NEWSLETTER |
| Previous Newsletter Issues |
The 2005 Tax Increase Prevention and
Reconciliation Act (TIPRA) was signed
into law on May 17, 2006. It affects
individuals, businesses and
corporations. Below are a couple of
items that may be of interest to you.
The act extended the lower rates on
adjusted capital gains through 2010.
Basically net capital gains are taxed at
the federal level at 15%. This is the
maximum rate and depending on your
other income the tax could be 10% or
0%. Qualified dividends, i.e., dividends
received from domestic corporations
and qualified foreign corporations are
taxed at 15%. TIPRA extends this
favorable treatment of qualified
dividends through 2010.
Children subject to the Kiddie Tax pay
tax at their parents’ top rates on the
child’s unearned income over $1,700
(for 2006) if that tax exceeds the tax the
child would otherwise pay on that
income. Under the new law, for tax
years beginning after 2005, the Kiddie
Tax applies to children under 18
(previously 14).
Under existing law, regular IRAs can be
converted to Roth IRAs if the taxpayer’s
modified adjusted gross income
(excluding the conversion income) does
not exceed $100,000 and the taxpayer
is not a married individual filing a
separate return. For tax years
beginning after 2009, the new law
eliminates this $100,000 modified AGI
limitation. The law also provides that if
the conversion is occurs in 2010, unless
the taxpayer elects otherwise, the
conversion is taxed half in 2011 and half
in 2012.
The Energy Policy Act of 2005 replaced
the clean-fuel burning deduction with a
tax credit. A tax credit is subtracted
directly from the total amount of federal
tax owed, thus reducing or even
eliminating the taxpayer’s tax obligation.
Reconciliation Act (TIPRA) was signed
into law on May 17, 2006. It affects
individuals, businesses and
corporations. Below are a couple of
items that may be of interest to you.
The act extended the lower rates on
adjusted capital gains through 2010.
Basically net capital gains are taxed at
the federal level at 15%. This is the
maximum rate and depending on your
other income the tax could be 10% or
0%. Qualified dividends, i.e., dividends
received from domestic corporations
and qualified foreign corporations are
taxed at 15%. TIPRA extends this
favorable treatment of qualified
dividends through 2010.
Children subject to the Kiddie Tax pay
tax at their parents’ top rates on the
child’s unearned income over $1,700
(for 2006) if that tax exceeds the tax the
child would otherwise pay on that
income. Under the new law, for tax
years beginning after 2005, the Kiddie
Tax applies to children under 18
(previously 14).
Under existing law, regular IRAs can be
converted to Roth IRAs if the taxpayer’s
modified adjusted gross income
(excluding the conversion income) does
not exceed $100,000 and the taxpayer
is not a married individual filing a
separate return. For tax years
beginning after 2009, the new law
eliminates this $100,000 modified AGI
limitation. The law also provides that if
the conversion is occurs in 2010, unless
the taxpayer elects otherwise, the
conversion is taxed half in 2011 and half
in 2012.
The Energy Policy Act of 2005 replaced
the clean-fuel burning deduction with a
tax credit. A tax credit is subtracted
directly from the total amount of federal
tax owed, thus reducing or even
eliminating the taxpayer’s tax obligation.
The tax credit for hybrid vehicles
applies to vehicles purchased or
placed in service on or after January
1, 2006. The credit is only available to
the original purchaser of a new,
qualifying vehicle.
The IRS recently announced that
purchasers of qualified Honda Motor
Corp., Inc. vehicles and qualified Ford
and Mercury vehicles may continue to
claim the Alternative Motor Vehicle
Credit.
Other items:
The standard deduction for taxpayers
who do not itemize deductions on
Schedule A of Form 1040 is, in most
cases, higher for 2006 than it was for
2005. The amount depends on your
filing status, whether you are 65 or
older or blind, and whether an
exemption can be claimed for you by
another taxpayer.
The basic standard deduction
amounts for 2006 are:
• Head of household — $7,550
• Married taxpayers filing jointly and
qualifying widow(er)s — $10,300
• Married taxpayers filing
separately — $5,150
• Single — $5,150
The top audit targets have remained
the same over the last few years. The
IRS continues to look closer at sole
proprietors, independent contractors,
non-cash compensation for top
executives, and auto, entertainment,
meals expense. The best defense is a
good record keeping system.
Visit our website, www.completaxnapa.
com, for current and past newsletters
and other useful information.
applies to vehicles purchased or
placed in service on or after January
1, 2006. The credit is only available to
the original purchaser of a new,
qualifying vehicle.
The IRS recently announced that
purchasers of qualified Honda Motor
Corp., Inc. vehicles and qualified Ford
and Mercury vehicles may continue to
claim the Alternative Motor Vehicle
Credit.
Other items:
The standard deduction for taxpayers
who do not itemize deductions on
Schedule A of Form 1040 is, in most
cases, higher for 2006 than it was for
2005. The amount depends on your
filing status, whether you are 65 or
older or blind, and whether an
exemption can be claimed for you by
another taxpayer.
The basic standard deduction
amounts for 2006 are:
• Head of household — $7,550
• Married taxpayers filing jointly and
qualifying widow(er)s — $10,300
• Married taxpayers filing
separately — $5,150
• Single — $5,150
The top audit targets have remained
the same over the last few years. The
IRS continues to look closer at sole
proprietors, independent contractors,
non-cash compensation for top
executives, and auto, entertainment,
meals expense. The best defense is a
good record keeping system.
Visit our website, www.completaxnapa.
com, for current and past newsletters
and other useful information.