Tax Tip of the Week
June 5, 2006

Here's a summary of the major provisions in the new law signed by President Bush on May 17, 2006.

Alternative minimum tax (AMT).

Congress extended and expanded the temporary AMT relief they provided two years ago. This had expired at the end of 2005. Originally intended to apply only to the wealthiest taxpayers, the AMT has been catching more and more middle-income taxpayers in recent years.

The new provisions increase the exemption amount from $58,000 to $62,550 for married filers (from $40,250 to $42,500 for singles) for this year only. You'll also be able to apply some specific personal credits against the AMT.

Investment taxes.

The new law extends the maximum 15% tax rate on most dividends and long-term capital gains through 2010. The favorable rates on investment earnings were scheduled to expire at the end of 2008.

Business expensing.

Small business also benefits from the new tax bill. A tax break that allows companies to take an immediate deduction for up to $108,000 of equipment purchases is extended through 2009.

Kiddie tax.

The tax bill also contains provisions to help offset the costs of the extended tax breaks. One change makes the kiddie tax apply to children up to age 18, rather than age 14 as under prior law. Under the kiddie tax, a child's investment earnings above a certain limit ($1,700 in 2006) are taxed at the parent's rate instead of the child's usually lower rate. This change will make income-shifting strategies less attractive.

Other more technical provisions affect various business credits and taxes, as well as future Roth IRA conversions. There's also likely to be a follow-on tax bill extending other popular tax breaks within a few months.

For more details on any of these changes, please contact our office.

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E-Mail us at: finance@ClevelandSeniors.Com