In May 2006, the Tax Increase Prevention and Reconciliation Act was signed into law by the President. This new piece of legislation includes several significant tax changes. The major changes that may affect you and your business include:
1) Alternative Minimum Tax Relief – In 2006, the AMT exemption amounts were scheduled to fall from $58,000 for married couples filing joint, $40,250 for single taxpayers and $29,000 for married couples filing separately to $45,000, $33,750 and $22,500 for each respective filing status. Due to this legislation, the AMT exemption will actually increase to $62,550 for married filing joint, $42,500 for single taxpayers and $31,725 for the married filing separate status. By taking this step, millions of Americans will now avoid the AMT.
2) Extension of 15% Capital Gain and Dividend Tax Rate – The tax rate on long-term capital gains and qualified dividend income will remain at 15% until 2010. Previously, this 15% rate was scheduled to expire after 2008 and dividends and long-term capital gains would be taxed at higher rates.
3) Expansion of Kiddie Tax – For purposes of the “kiddie tax,” the age limit to which this rule applies has been increased from 14 to 18. The “kiddie tax” refers to the situation where children with greater than $1,700 in investment income pay income tax at their parents’ highest marginal tax rate. Thus, more parents and children will find themselves subject to this tax.
4) Extension of Expense Election – Under previous law, the expense election (Section 179 Election) on the purchase of certain business property was to decrease by $25,000 in 2007. This legislation extends the current election limit ($100,000 as inflation adjusted) to tax years beginning before 2010.
5) Elimination of Income Limitation on Roth IRA – Beginning in 2010, taxpayers with more than $100,000 in modified adjusted gross income can convert their regular IRA to a Roth IRA. Previously, taxpayers who made more than $100,000 could not make a Roth conversion.
The above items are only highlights of the changes that have recently gone into effect. If you have other questions, please contact us at your convenience and we will be happy to explain these items and some of the others in greater detail.
