The Tax Increase Prevention and Reconciliation Act of 2005 was signed into law on May 1, 2006 by President Bush, (it started out as a 2005 bill). Some changes of interest to many include:
-A temporary patch to give some middle class taxpayers (about 15 million) relief from the Alternative Minimum Tax (AMT). For 2006 only, the AMT exemption for a married couple filing jointly is increased to $62,550, single taxpayers to $42,500. In 2007 it drops back to $45,000 for joint filers and $33,750 for single taxpayers.
-Lower capital gain and dividend tax rates were extended two years, until December 31, 2010. The rates for taxpayers in 10 and 15% tax brackets is 5% until 2008, then the rate goes to zero. For taxpayers in ordinary tax brackets above 15%, the capital gains rate is a maximum of 15%.
-The age for the “kiddie tax” goes to 18. For 2006, the unearned income of a minor child that exceeds $1700 is taxed at the parent’s highest marginal tax rate if that rate gives a higher tax.
-Expensing or IRC Section 179 was scheduled to fall back to $25,000 in 2008. The current $100,000 (indexed to inflation) limit has been extended two more years, 2008 and 2009. In 2006, the inflation indexed limit is $108,000 on the expensing election, with an investment cap at $430,000.
-The Roth IRA earnings are tax free, but those with adjusted gross income above the limits were unable to convert Traditional IRA’s into a Roth. In 2009, the $100,000 limitation will be gone.
-A loop-hole with the Domestic Production Deduction was fixed. The new rules make it clear that when calculating the IRC Section 199 deduction, you may only use the W-2 wages that are properly allocable to the domestic production gross receipts.
OSU Extension offers tax education opportunities, beginning this fall. A special thanks goes to one of our Ohio Income Tax School instructors, Trenna Grabowski, CPA and Editor of the Farm Tax Saver newsletter, for this update information.