Impacts of Recent Legislation on 2006 Taxes

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.

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