Increased section 179 limits. The maximum section 179 deduction you can elect for property you placed in service in 2006 is increased to $108,000 for qualified section 179 property. This limit is reduced by the amount by which the cost of section 179 property placed in service during the tax year exceeds $430,000.

More information. Publication 946, How to Depreciate Property , has more information on these rules.

The self-employment tax rate on net earnings remains the same for 2006. This rate, 15.3%, is a total of 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).

The maximum amount subject to the social security part for tax years beginning in 2006 has increased to $94,200. All net earnings of at least $400 are subject to the Medicare part.

Social Security and Medicare Taxes for 2006. The employer and employee will continue to pay:
6.2% each for social security tax (old-age, survivors, and disability insurance), and
1.45% each for Medicare tax (hospital insurance).
Wage limits. For social security tax, the maximum amount of 2006 wages subject to the tax has increased to $94,200. For Medicare tax, all covered 2006 wages are subject to the tax. Circular E (Publication 15), Employer’s Tax Guide, has more information about these taxes.

Mileage Rates. For 2006, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck for your business is 44.5 cents a mile for all business miles driven.

The Ohio Income Tax Schools are designed for tax preparers with some experience preparing and filing federal tax returns for individuals and small businesses. Instruction focuses on tax law changes and on the problems faced in preparing tax returns. The tax school workbook also will cover changes in filing Ohio tax returns. Highly qualified instructors will explain and interpret tax regulations and recent changes in tax laws.

Participants in the Tax Schools receive a 700-page workbook prepared by the Land Grant University Tax Education Foundation, especially for the income tax schools held in Ohio and 30 other states. The workbook is available only as a part of tax school registration. This year participants will also receive RIAs Federal Tax Handbook.

The $260 registration fee includes the workbook and other reference materials, instructor fees, meals, meeting rooms, and other expenses.

The locations and tax school dates are:

Ashland: Tuesday-Wednesday, November 14-15
Fremont: Thursday-Friday, November 16-17
Columbus: Monday-Tuesday, November 20-21
Zanesville: Tuesday-Wednesday, November 28-29
Lima: Thursday-Friday, November 30-December 1
Dayton: Tuesday-Wednesday, December 5-6
Kent: Tuesday-Wednesday, December 5-6
Chillicothe: Thursday-Friday, December 7-8

A web site is available for registration:  http://aede.osu.edu/programs/TaxSchool/

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.

In general, contract farming arrangements with livestock integrators, seed companies and processors leave the farmer with less risk, fewer management decisions, and no marketing choices.  A few years ago, The Ohio Income Tax School workbook covered the issue of whether a contract farming taxpayer has the potential of losing many of the characteristics of a farming business, that allow favorable tax treatments, available only to farmers.

The taxpayer must be a farmer to take advantage of the:
1.  Exception to the estimated tax penalty
2.  Deduction of soil & water conservation expenses
3.  Deduction of fertilizer expenses
4.  Discharge of indebtedness rules
5.  Exemption from FICA taxes on non-cash wages
6.  Exemption from the prohibition of cash accounting for corporations
7.  IRC Section 179 expensing (Taxpayers must be in a trade or business)
8.  Income averaging (Schedule J), a taxpayer must have farming income

Some processors are reporting payments to growers on Form 1099-MISC, checking the rent box.  It is tempting for a grower to report these payments on Schedule E as rental income, instead of Schedule F as farm income.  In this way, the grower would avoid self-employment tax.  However, it is difficult to justify the reporting of the payment on schedule E since the grower is materially participating in production in most cases.  The 2005 Farmer’s Tax Guide, IRS Publication 225 list the tests for material participation for self-employment tax purposes.  For example, a producer raises hogs for a contractor and is paid $32 per pig space.  The grower feeds the hogs, inspects the pigs daily, orders feed when needed and cleans the building between groups.  He is also paid an incentive payment for meeting production efficiency standards.  The contractor owns the hogs and is at risk for death loss or health problems. Since the grower materially participates in hog production and has production risk, he should report the income on Schedule F as Farm Income.

Assume the same facts as the above example, but the grower is now retired and hires his daughter to feed and care for the hogs.  He pays his daughter for her labor and management, plus gives to her the manure for her families crop farming operation.  In this case, the grower is not materially participating in hog production and should report his income on Schedule E.  The same would be true if the building is leased to an integrator.  Deductions for depreciation,  insurance, real estate taxes and building repair would also be included as expenses on Schedule E.

What about the employment status of a contract grower?   It could be said that if a farm producer enters a contract with an integrator, the producer should have wage income, rather than income for farming.  In this case, the producers building would be investment property, rather than used in a trade or business. This classification as an employee would be unlikely, however, unless the risk of loss on part of the farmer is eliminated or greatly reduced by the terms of the contract.  In this case, the producer would be participating in the growing process, but might not meet the risk of loss test to be classified as a farmer.

Generally, payments made by most contract integrators to growers should meet the IRS requirements for this income to be considered as farm income, and subject to self-employment taxes.  It should be noted that The Ohio Income Tax School offers income tax education opportunities for tax practitioners and others with professional interest in the subject of income tax management. Check future issues of this newsletter for registration information about income tax schools, held in November and December.

As taxpayers begin to prepare their tax returns, the Internal Revenue Service notes that some may be sending their returns to a different service center than last year. Those who received a tax instruction booklet from the IRS in the mail and use the labels included with the booklet can be assured that their tax returns will go to the correct address. Taxpayers who e-file are not affected by these changes.

For tax year 2005, the mailing changes affect returns, with or without payments, from the District of Columbia and 11 states – Colorado, Delaware, Kansas, Maryland, Mississippi, Nebraska, New Mexico, Ohio, South Dakota, Virginia, and West Virginia.

Taxpayers should send:
• Returns from Delaware and Virginia to the IRS Center in Atlanta, Georgia;
• Returns from the District of Columbia and Maryland to the IRS Center in Andover, Massachusetts;
• Returns from Ohio to the IRS Center in Kansas City, Missouri;
• Returns from Kansas, Mississippi and West Virginia to the IRS Center in Austin, Texas;
• Returns from Colorado, Nebraska, New Mexico, and South Dakota to the IRS Center in Fresno, California.

For taxpayers who file paper returns, the correct center addresses are on labels inside the tax packages. Taxpayers who do not receive a package should refer to the back cover of the instructions to Form 1040, 1040-A or 1040EZ.

You may be able to take two new tax credits , the nonbusiness energy property credit and the residential energy efficient property credit, for making energy saving improvements to your home in 2006. In addition, there are also credits available for alternative motor vehicles including hybrids.

Consumers who purchase and install specific products, such as energy-efficient windows, insulation, doors, roofs, and heating and cooling equipment in the home can receive a tax credit. The law provides a 10 percent credit for buying qualified energy efficiency improvements. The maximum credit for all taxable years is $500 – no more than $200 of the credit can be attributable to expenses for windows.

Consumers may also take a credit equal to 30% of qualifying expenditures for purchase for qualified photovoltaic property and for solar water heating property used exclusively for purposes other than heating swimming pools and hot tubs. The credit is capped at $2000. Home improvement tax credits apply if the improvements are made between January 1, 2006 and December 31, 2007.

Individuals and businesses who buy or lease a new hybrid gas-electric car or truck are eligible for, and can receive, an income tax credit up to $3,400 – depending on the fuel economy and the weight of the vehicle. The other vehicles eligible for credits are fuel cell vehicles, alternative fuel vehicles, and hybrid heavy trucks. The IRS will issue guidance providing certification procedures for these vehicles in the near future.

Details on the above tax credits are outlined in IRS Factsheet, Highlights of the Energy Policy Act of 2005 for Individual, available at:

http://www.irs.gov/newsroom/article/0,,id=153397,00.html

Questions have arisen regarding corn burning stoves, pellet-type stoves, and wood burning stoves, and whether or not these items qualify for a tax credit if purchased in 2006. There is currently an unfunded provision of the Energy Policy Act that, if funded by Congress, could provide a rebate of 25%, capped at $3000, for consumers choosing renewable energy, which may include pellet stoves for home heating. Additional action is required by Congress to fund this provision. As of this writing (2/23/06), this provision is not funded. This provision is found in Title II(A), Sections 206-208 of the Energy Policy Act. The Energy Policy Act of 2005 is available at:

http://energycommerce.house.gov/108/energy_pdfs_2.htm.

A recent notice from FSA offices have caused some misunderstandings about the taxation of Conservation Security Program (CSP) payments. As a general rule, government payments are subject to both income and self employment taxes. Deductions, however, are taken for ordinary expenses (seed, fertilizer, fuel). Depreciation may be taken for expenses such as drainage tile, to include Section 179 Expensing. Also, soil and water expenses for such things as earth moving or brush clearing, that can not otherwise be depreciated, are written off on line 14 of Schedule F. These factors will reduce the amount of cost share or other payments subject to tax.

Landowners may also be able to exclude from income some cost share expenses under Internal Revenue Code Section 126. It is under this provision that the CSP payments are also qualified for exclusion, if the requirements of the code section are met. First of all, the CSP payments must be used for capital improvement to use the I.R.C. 126 exclusion. Therefore, CSP payments for stewardship and maintenance of conservation practices are not eligible for the I.R.C. 126 exclusion. Furthermore, the improvement for which the payment is made cannot significantly increase the annual income derived from the property. This will involve a present value analysis.

For the most part, I.R.C. 126 would not be used by most farmers, unless the capital improvement is so very expensive, that the soil and water deduction (I.R.C. 175) will not be sufficient. This deduction is limited to 25% of gross farm income. Furthermore, a cash rent landlord is not eligible for the I.R.C. 175, soil and water expense deduction. However, the cash rent landlord could use the section 126 exclusion for conservation improvements.

Income tax practitioners that have attended the Ohio Income Tax School (sponsored by OSU Extension) will be knowledgeable of the facts of this situation and will have practical examples to follow. Other information may be found at: http://www.nrcs.usda.gov/programs/csp/ and

http://a257.g.akamaitech.net/7/257/2422/01jan20051800/edocket.access.gpo.gov/2005/pdf/05-12516.pdf.

Consult your tax advisor for further information.

IRC Section 280B disallows deduction for the cost of demolishing buildings.  This cost, and the remaining building basis, is to be added to the lands’ basis, therefore would only be recovered upon a future sale of the land. Here are some examples:

First:  If a farm is purchased and the existing farmstead is to be demolished and buried, this cost is added to the lands’  basis and there is no current deduction.  If the buildings are used for a time, depreciation may be taken on the buildings.  In this case, at the time of demolition, the remaining basis on the building, yet to be depreciated, would also be added to the lands’ basis as would the cost of demolition.

Second:  What if the buildings are abandoned?  Then the remaining basis of the buildings is treated as a disposition or as a sale for zero dollars.  Therefore, the remaining basis becomes an ordinary loss and is reported on Form 4797.

Third:  What if abandoned buildings are later demolished, at least one year after these were no longer used in the farm business?  In this case, there is no remaining basis on the buildings and the only remaining addition to the basis of the land would be the cost of demolition.

The tax treatment for the cost of demolition, such as taking down trees and buildings, closing wells, and grading the site for future tillage, may only be deducted during the period of productive use of the buildings.  Since there is no productive state of the abandoned buildings, these costs are expenses for development and  are treated as a capital investment.  Therefore, these costs are added to the basis of the land.

Click Below for a full pdf version

TaxChangesfo 2005-breece1

Charitable Contributions of Vehicles, Boats, and Aircraft

If you donate a vehicle (including a boat or aircraft) to a qualified organization after December 31, 2004, your deduction is limited to the gross proceeds from its sale by the organization. This rule applies if the claimed value of the donated vehicle is more than $500. However, you generally can deduct its fair market value if the organization:

• Makes significant intervening use of the vehicle,
• Materially improves the vehicle, or
• Transfers the vehicle to a needy individual in direct furtherance of the donee’s charitable purpose of relieving the poor and distressed or underprivileged who are in need of a means of transportation.

Boats, aircraft, and other vehicles.

These rules apply to donations of boats, aircraft, and any vehicle manufactured mainly for use on public streets, roads, and highways.

Acknowledgement required.

If the claimed value of the car is more than $500, you must have a written acknowledgement of your donation from the organization and must attach it to your return. If you do not have an acknowledgement, you cannot deduct your contribution.

The acknowledgement must include the following information.

1. Your name and taxpayer identification number.
2. The vehicle identification number or similar number.
3. A statement certifying the car was sold in an arm’s length transaction between unrelated parties.
4. The gross proceeds from the sale.
5. A statement that your deduction may not be more than the gross proceeds from the sale.
6. The date of the contribution.

However, if there was significant intervening use of or material improvement to the car by the organization, the acknowledgement does not have to include the information in items 3, 4, and 5 above. Instead, it must contain a certification of the intended use of or material improvement to the car and the intended duration of that use and a certification that the vehicle will not be transferred in exchange for money, other property, or services before completion of that use or improvement.

This acknowledgement must be provided within 30 days of the sale of the car or, if there is significant intervening use or material improvement of the car by the organization, within 30 days of the contribution.

The organization also must provide this information to the IRS.

More information.

More information can be found in Notice 2005-44 and the 2005 revision of Publication 526, Charitable Contributions (to be available mid-December 2005).

Uniform Definition of a Qualifying Child

Beginning in 2005, one definition of a qualifying child will apply for each of the following tax benefits.

• Dependency exemption.
• Head of household filing status.
• Earned income credit (EIC).
• Child tax credit.
• Credit for child and dependent care expenses.

Tests To Meet

In general, all four of the following tests must be met to claim someone as a qualifying child.

Relationship test.

The child must be your child (including an adopted child, stepchild, or eligible foster child), brother, sister, stepbrother, stepsister, or a descendent of one of these relatives.

An adopted child includes a child lawfully placed with you for legal adoption even if the adoption is not final.

An eligible foster child is any child who is placed with you by an authorized placement agency or by judgement, decree, or other order of any court of competent jurisdiction.

Residency test.

A child must live with you for more than half of the year. Temporary absences for special circumstances, such as for school, vacation, medical care, military service, or detention in a juvenile facility count as time lived at home. A child who was born or died during the year is considered to have lived with you for the entire year if your home was the child’s home for the entire time he or she was alive during the year. Also, exceptions apply, in certain cases, for children of divorced or separated parents and parents of kidnapped children.

Age test.

A child must be under a certain age (depending on the tax benefit) to be your qualifying child.

Dependency exemption, head of household filing status, and EIC.

For purposes of these tax benefits, a child must be under the age of 19 at the end of the year, or under age 24 at the end of 2005 if a student, or any age if permanently and totally disabled.

A student is any child who, during any 5 months of the year:

1. Was enrolled as a full-time student at a school, or
2. Took a full-time, on-farm training course given by a school or a state, county, or local government agency.

A school includes a technical, trade, or mechanical school. It does not include an on-the-job training course, correspondence school, or night school.

Child tax credit.

For purposes of the child tax credit, a child must be under the age of 17.

Credit for child and dependent care expenses.

For purposes of the credit for child and dependent care expenses, a child must be under the age of 13 or any age if permanently and totally disabled.

Support test.

A child cannot have provided over half of his or her own support during the year.

Exception.

For purposes of the EIC only, the Support test does not apply.

Qualifying Child of More Than One Person

Sometimes a child meets the tests to be a qualifying child of more than one person. However, only one person can treat that child as a qualifying child. If you and someone else (other than your spouse if filing jointly) have the same qualifying child, you and the other person(s) can decide who will claim the child. If you cannot agree on who will claim the child and more than one person files a return using the same child, the IRS may disallow one or more of the claims using the tie-breaker rule explained in Table 1, next.

Table 1. When More Than One Person Files a Return Claiming the Same Qualifying Child (Tie-Breaker Rule).

Dependency Exemption

To claim the dependency exemption for a qualifying child, all four tests listed earlier under Tests To Meet must be met. The child generally must also be a U.S. citizen, U.S. national, or a resident of the United States , Canada , or Mexico . An exception applies for certain adopted children. If married, he or she cannot file a joint return unless the return is filed only as a claim for refund and no tax liability would exist for either spouse if they had filed separate returns.

A person who used to qualify as your dependent but who is not your “qualifying child” may still qualify as your dependent as a “qualifying relative.” To claim the dependency exemption for a qualifying relative, the child cannot be the qualifying child of any other person and all five dependency tests discussed under Dependency Tests in Publication 501 must be met.

Note: If you are a dependent of another person, you cannot claim any dependents on your return.

Head of Household Filing Status

In general, you can use head of household filing status only if, as of the end of the year, you were unmarried or ” considered unmarried” and you paid over half the cost of keeping up a home:

1. That was the main home for all the entire year of your parent whom you can claim as a dependent (your parent did not have to live with you), or
2. In which you lived for more than half of the year with either of the following:
   1. Your qualifying child (defined earlier, but without regard to the exception for children of divorced or separated parents). But, if your qualifying child is married at the end of the year, see Married child below.
   2. Any other person whom you can claim as a dependent.

But you cannot use head of household filing status for a person who is your dependent only because:

• He or she lived with you for the entire year, or
• You are entitled to claim him or her as a dependent under a multiple support agreement.

Married child.

If your qualifying child is married at the end of the year, both of the following must apply for the child to be your qualifying child for purposes of head of household filing status.

1. The child cannot file a joint return unless the return is filed only as a claim for refund and no tax liability would exist for either spouse if they had filed separate returns.
2. The child must be a U.S. citizen, U.S. national, or a resident of the United States , Canada , or Mexico . An exception applies for certain adopted children.

Earned Income Credit (EIC)

You may be able to claim the earned income credit (EIC) in 2005 if you have:

1. 2 or more qualifying children and your earned income is less than $35,263 ($37,263 if married filing jointly for 2005),
2. 1 qualifying child and your earned income is less than $31,030 ($33,030 if married filing jointly for 2005), or
3. No qualifying children and your earned income is less than $11,750 ($13,750 if married filing jointly for 2005). For purposes of the EIC, a qualifying child must meet the Relationship test , Residency test (without regard to the exception for children of divorced or separated parents), and Age test , earlier. A qualifying child does not have to meet the Support test for purposes of the EIC. But, if your qualifying child is married at the end of the year, see Married child next.

Married child.

A child who is married at the end of the year is a qualifying child for purposes of the EIC only if you can claim him or her as your dependent (see Dependency Exemption , earlier) or this child’s other parent claims him or her as a dependent under the rules for children of divorced or separated parents in Publication 501, Exemptions, Standard Deduction, and Filing Information .

Child Tax Credit

You may be able to take the child tax credit if you have a qualifying child that meets all four of the tests listed earlier under Tests To Meet . For additional rules that you must meet, see Publication 972, Child Tax Credit .

Credit for Child and Dependent Care Expenses

Generally, a qualifying person for purposes of the credit for child and dependent care expenses is:

• Your qualifying child (defined earlier, but without regard to the exception for parents of kidnapped children), or
• Your dependent or spouse who is physically or mentally incapable of caring for himself or herself and who lived with you for more than half of the year.

For purposes of the credit for child and dependent care expenses, a qualifying child and dependent are determined without regard to the exception for children of divorced or separated parents and the child is treated as a qualifying person only for the custodial parent.

For additional rules that you must meet, see Publication 503, Child and Dependent Care Expenses . However, you no longer need to meet the Keeping Up a Home test discussed in Publication 503.

Earned Income Credit Amounts Increase

Earned income amount.

The maximum amount of income you can earn and still get the credit is higher for 2005 than it is for 2004. You may be able to take the credit for 2005 if:

• You have more than one qualifying child and you earn less than $35,263 ($37,263 if married filing jointly),
• You have one qualifying child and you earn less than $31,030 ($33,030 if married filing jointly), or
• You do not have a qualifying child and you earn less than $11,750 ($13,750 if married filing jointly).

The maximum amount of adjusted gross income (AGI) you can have and still get the credit has also increased. You may be able to take the credit if your AGI is less than the amount in the above list that applies to you.

Investment income amount.

The maximum amount of investment income you can have in 2005 and still get the credit increases to $2,700.

Electric and Clean-Fuel Vehicles

For 2005, the proposed 50% reduction of the maximum electric vehicle credit and the clean-fuel deduction has been eliminated. You can claim the maximum electric vehicle credit allowed for a qualified electric vehicle you place in service in 2005. You can claim the maximum deduction allowed for qualified clean-fuel vehicle or other clean-fuel property placed in service in 2005.

Exemption Amount Increased

The amount you can deduct for each exemption has increased from $3,100 in 2004 to $3,200 in 2005.

You lose all or part of the benefit of your exemptions if your adjusted gross income is above a certain amount. The amount at which the phaseout begins depends on your filing status. For 2005, the phaseout begins at:

• $109,475 for married persons filing separately,
• $145,950 for single individuals,
• $182,450 for heads of household, and
• $218,950 for married persons filing jointly or qualifying widow(er)s.

If your adjusted gross income is above the amount for your filing status, use the Deduction for Exemptions Worksheet in the Form 1040 instructions to figure the amount you can deduct for exemptions.

Retirement Savings Plans

Traditional IRA income limits. If you have a traditional individual retirement account (IRA) and are covered by a retirement plan at work, the amount of income you can have and not be affected by the deduction phaseout increases. The amounts vary depending on filing status.

Limit on elective deferrals. The maximum amount of elective deferrals under a salary reduction agreement that can be contributed to a qualified plan increases to $14,000 ($18,000 if you are age 50 or over). However, for a SIMPLE plan, the amount increases to $10,000 ($12,000 if you are age 50 or over).

IRA deduction expanded. The amount you, and your spouse if filing jointly, may be able to deduct as an IRA contribution will increase to $4,000 ($4,500 if age 50 or older at the end of 2005).

Social Security and Medicare Taxes

For 2005, the employer and employee will continue to pay:

1. 6.2% each for social security tax (old-age, survivors, and disability insurance), and
2. 1.45% each for Medicare tax (hospital insurance).

Wage limits. For social security tax, the maximum amount of 2005 wages subject to the tax is $90,000. For Medicare tax, all covered 2005 wages are subject to the tax.

Standard Deduction Amount Increased

The standard deduction for taxpayers who do not itemize deductions on Schedule A of Form 1040 is, in most cases, higher for 2005 than it was for 2004. 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 2005 are:

• Head of household — $7,300
• Married taxpayers filing jointly and qualifying widow(er)s — $10,000
• Married taxpayers filing separately — $5,000
• Single — $5,000

The standard deduction amount for an individual who may be claimed as a dependent by another taxpayer may not exceed the greater of $800 or the sum of $250 and the individual’s earned income.

Standard Mileage Rates

For tax years beginning in 2005, the allowable deductions for the standard mileage rate for the period January 1, 2005, through August 31, 2005, are as follows:

• Business miles. The standard mileage rate for the cost of operating your car increases to 40.5 cents a mile for all business miles driven.
• Charitable services. The standard mileage rate allowed for use of your car when you use your car to provide charitable services to a charitable organization is 14 cents a mile.
• Charitable services — Hurricane Katrina relief services. If you used your vehicle in giving services to a charitable organization to provide relief related to Hurricane Katrina, the standard mileage rate allowed for use of your car is 29 cents a mile for miles driven after August 24, 2005, and before September 1, 2005.
• Medical reasons. The standard mileage rate allowed for use of your car for medical reasons is 15 cents a mile.
• Moving. The standard mileage rate for determining moving expenses is 15 cents a mile.

The allowable deductions for the standard mileage rate for the period September 1, 2005, through December 31, 2005, are as follows:

• Business miles. The standard mileage rate for the cost of operating your car increases to 48.5 cents a mile for all business miles driven.
• Charitable services. The standard mileage rate allowed for use of your car when you use your car to provide charitable services to a charitable organization remains at 14 cents a mile.
• Charitable services — Hurricane Katrina relief services. If you used your vehicle in giving services to a charitable organization to provide relief related to Hurricane Katrina, the standard mileage rate allowed for use of your car is 34 cents a mile.
• Medical reasons. The standard mileage rate allowed for use of your car for medical reasons is 22 cents a mile.
• Moving. The standard mileage rate for determining moving expenses is 22 cents a mile.

Earned Income Credit Amounts Increase in 2006

Earned income amount.

The maximum amount of income you can earn and still get the credit is higher for 2006 than it is for 2005. You may be able to take the credit for 2006 if:

• You have more than one qualifying child and you earn less than $36,348 ($38,348 if married filing jointly),
• You have one qualifying child and you earn less than $32,001 ($34,001 if married filing jointly), or
• You do not have a qualifying child and you earn less than $12,120 ($14,120 if married filing jointly).

The maximum amount of adjusted gross income (AGI) you can have and still get the credit has also increased. You may be able to take the credit if your AGI is less than the amount in the above list that applies to you.

Investment income amount.

The maximum amount of investment income you can have in 2006 and still get the credit increases to $2,800.

Exemption Amount Increased in 2006

The amount you can deduct for each exemption has increased from $3,200 in 2005 to $3,300 in 2006.

You lose all or part of the benefit of your exemptions if your adjusted gross income is above a certain amount. The amount at which the phaseout begins depends on your filing status. For 2006, the phaseout begins at:

• $112,875 for married persons filing separately,
• $150,500 for single individuals,
• $188,150 for heads of household, and
• $225,750 for married persons filing jointly or qualifying widow(er)s.

If your adjusted gross income is above the amount for your filing status, use the Deduction for Exemptions Worksheet in the Form 1040 instructions to figure the amount you can deduct for exemptions.

Social Security and Medicare Taxes

For 2006, the employer and employee will continue to pay:

1. 6.2% each for social security tax (old-age, survivors, and disability insurance), and
2. 1.45% each for Medicare tax (hospital insurance).

Wage limits. For social security tax, the maximum amount of 2006 wages subject to the tax has increased from $90,000 to $94,200. For Medicare tax, all covered 2006 wages are subject to the tax.

Standard Deduction Amount Increased (2006)

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 standard deduction amount for an individual who may be claimed as a dependent by another taxpayer may not exceed the greater of $850 or the sum of $300 and the individual’s earned income.

Standard Mileage Rates (2006)

For tax years beginning in 2006, the allowable deductions for the standard mileage rate are as follows:

• Business miles. The standard mileage rate for the cost of operating your car increases to 44.5 cents a mile for all business miles driven.
• Charitable services. The standard mileage rate allowed for use of your car when you use your car to provide charitable services to a charitable organization is 14 cents a mile.
• Charitable services — Hurricane Katrina relief services. If you used your vehicle in giving services to a charitable organization to provide relief related to Hurricane Katrina, the standard mileage rate allowed for use of your car is 32 cents a mile.
• Medical reasons. The standard mileage rate allowed for use of your car for medical reasons is 18 cents a mile.
• Moving. The standard mileage rate for determining moving expenses is 18 cents a mile.

Farmers have long enjoyed Ohio Sales tax exemption for many, but not all, items used for production of agricultural commodities.  The Ohio Department of Taxation web site has information about sales taxes and includes the following responses for commonly asked questions: www.tax.ohio.gov .

As a farmer, may I claim exemption on my purchases and how?

“Farmers are entitled to claim exemption on the purchase of items of tangible personal property used directly in the production of a product for sale . This would include, but is not limited to: seeds, fertilizers, insecticides, pesticides, field tiles, tractors, plows, combines, and specially designed motor vehicles with PTO applicator units that travel from farm to farm to apply chemicals and fertilizers. This would not include: almost all motor vehicles licensed to operate on the highway [passenger cars; pick-up trucks; larger trucks and trailers that are primarily used to haul people, animals, raw materials (seeds, fertilizers, insecticides and pesticides) to the farm and finished goods (corn, wheat, soy beans, cattle, hogs, etc.) from the farm to market], lawn mowers, weed eaters, items used to maintain set-a-side fields, chain saws, all purposes vehicles that are primarily used for recreation, and home garden equipment.”

“To claim exemption, a properly completed exemption certificate must be given to your supplier.”

How do I obtain a sales tax exemption number?

“The State of Ohio does not issue a sales tax exemption number. A vendor’s license number is NOT a sales tax exemption number. To claim exemption, you must provide a properly completed exemption certificate to your supplier.”

How will I know if a sale is exempt from the tax?

“Sales tax must be charged on all retail sales unless the purchaser provides a properly completed exemption certificate stating the statutory reason for claiming exemption. The vendor must retain the certificate as proof of nontaxable sales. Exemption certificates are prescribed by the Tax Commissioner and can be obtained from a local printer or office supply store. Sample forms are available on the Ohio Department of Taxation website.”

“Exemption certificates are not needed when the item sold is never taxable, such as prescription drugs and food sold for off-premises consumption. Certificates are not needed when the purchaser is clearly identified on the invoice as an entity that is always exempt, such as the federal government, the State of Ohio , or any local government of this state.”

EXEMPTION CERTIFICATE FORMS – Information Release May, 2005

“The following forms are authorized by the Ohio Department of Taxation for use by Ohio consumers when making exempt purchases.  Other than as noted below the use of a specific form is not mandatory when claiming an exemption.  So long as the consumer provides the vendor or seller with all data elements required for a valid exemption certificate, the vendor may accept the certificate and be relieved of the obligation to collect the tax.  Note also that exemption certificates may be presented in either paper or electronic form.  Paper certificates require, as one of the data elements, a signature from the consumer.  No signature is required on electronic certificates.  For more information on the proper use of exemption certificates in specific situations, see Rules 5703-9-03, 5703-9-10, 5703-9-14 and 5703-9-25 of the Ohio Administrative Code.”

General Exemption Certificate Forms

Unit Exemption Certificate.  This exemption certificate is used to claim exemption or exception on a single purchase.

Blanket Exemption Certificate.  This certificate is used to make a continuing claim of exemption or exception on purchases from the same vendor or seller.