2006 Federal Income Tax Notes

Business Travel Mileage Rates
Rather than use actual costs of operating a vehicle, a business may use the standard mileage rate on up to four vehicles.  The 2006 business mileage rate is $.445, and in 2007 it will be $.485 per mile of business use.  The depreciation component of this rate was 16 cents for 2004 and 2003.  It is 17 cents per mile for 2005 and 2006.  The depreciation component is used to reduce the basis of the vehicle for calculating gain or loss upon disposition.

Social Security
The maximum earnings subject to Social Security for 2007 will be $97,500, up $3,300 from $94,200 for 2006.  The rates for Old Age, Survivors and Disability Insurance OASDI has not changed since 1990.  It remains at 6.2% for OASDI and 1.45% for Medicare (Hospital Insurance), paid by employers and matched by employees.  Self-employed persons pay both parts themselves or 12.4% for OASDI and 2.9% for Medicare (15.3% SE Tax). The cost of one quarter of coverage goes from $970 to $1,000 in 2007.  For those under full retirement age and drawing benefits have withheld $1 of benefits for every $2 above earned income of $12,480 in 2006 and $12,960 in 2007. The cost-of-living or COLA for 2007 is 3.3%.  Considering the COLA, in 2007 the maximum Social Security retirement benefit for someone at full retirement age will be $2,116.  It is estimated that the 2007 average Social Security retirement benefit will be $1,044 for a retired individual currently drawing benefits.

Education Credits in 2006
The Hope Scholarship Credit is $1,650 per eligible student. The Lifetime Learning Credit is $2,000 per return.  The Student Loan Interest Deduction per return is $2,500.

Limits for Retirement Plan Contributions
The 2006 limits are:  IRA’s $4,000, SIMPLE $10,000, SEP, 403b or 401k $15,000,and in a Defined Benefit Plan $44,000.

Standard Deduction and Exemption in 2006
The standard deduction is $5,150 for single and $10,300 for joint returns.    For a taxpayer claimed as a dependent, the deduction is $850 or earned income plus $300.  The personal and dependent exemption is $3,300.

Capital Gain and Dividend Rates
The capital gain rate on collectibles is 28%, for long-term capital gains or dividends the maximum rate is 15%.  The long-term capital gain rate is reduced to 5% if the ordinary tax rate is 10 or 15%.

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