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Pension Protection Act
of 2006 signed by President Bush on August 17, among other things, makes
permanent the retirement savings incentives enacted under the Economic Growth
and Tax Relief Reconciliation Act of 2001.
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Tax Increase
Prevention and Reconciliation Act provides
tax breaks starting in 2006 and include,
among other things,
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Extension of the dividend and capital gains rate cut for two more years beyond
2008.
Currently, most dividend and capital gains are taxed at a maximum tax rate of
15% for qualifying taxpayers. Taxpayers in the 10% and 15% tax brackets
are eligible for a maximum 5% tax rate, with the rate falling to zero in 2008.
However, these tax cuts were scheduled to expire at the end of 2008. The
new law extends these tax cuts through December 31, 2010. |
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Immediate relief from the alternative minimum tax (AMT).
It was estimated that an
additional 15 million taxpayers would be subject to AMT in 2006. This
provision provides higher exemption rates for 2006 - $62,550 for married
filing jointly and $42,500 for single taxpayers. |
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Extends small business expensing thresholds
through December 31, 2009.
A business taxpayer may
expense up to $108,000 of the cost of qualifying property for 2006, with a
reduction of the amount by which the cost exceeds $430,000. Without
this extended provision, the expensing limit would have dropped to $25,000
with a $200,000 cap after 2007.
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Eliminates the $100,000 adjusted gross income
ceiling for Roth conversions after 2009.
Although the conversion is taxed as a distribution, it is not subject to the
10% early distribution penalty. Taxpayers converting in 2010 can elect
to recognize the conversion in 2010 or average it over the next two years.
Future contributions to a Roth IRA are not tax deductible, but the earnings
are permanently tax-free and Roth IRAs do not require a minimum distribution
at age 70-1/2.
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Expanded kiddie tax.
The kiddie tax rules require that a child’s unearned income be taxed at the
parents’ tax rate. Currently, the kiddie tax applies if a child is under age
14, has net unearned income over $1,700 and can be claimed as a dependent on
the parent’s return. This Act raises the age limit to under 18. |
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Roth 401(k) |
Created as part of
the Economic Growth and Tax Relief Reconciliation Act of 2001, the Roth 401(k)
becomes effective on January 1, 2006. Contributions are not excluded
from income, but distributions will not be taxed if certain criteria are met. Distributions are required at age 70-1/2;
however, the Roth 401(k) assets can be rolled over into a Roth IRA in which
distributions are not mandatory.
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The Energy Policy Act of 2005 provides
tax breaks starting in 2006 and include, among other things,
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Individual Energy Incentives
A tax credit is available for up to 10% of the
cost of energy-saving improvements to primary residences done in 2006 and 2007,
with a lifetime maximum credit of $500 although no more than $200 can be claimed
for window costs. Additionally, a maximum credit of $2,000, up to 30% of
the cost, is available for solar water heaters installed in 2006 and 2007.
This credit does not apply to equipment used to heat swimming pools and hot
tubs.
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Business Energy Incentives
Tax credits are available for the new energy
efficient homes built in 2006 and 2007 (maximum credit of $2,000 per
dwelling) and the manufacture of energy efficient appliances.
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Alternative Fuel Vehicle Credits
A new tax credit replaces the current
above-the-line deduction of up to $2,000 for the cost hybrid vehicles.
Vehicles purchased in years 2006 through 2009 may receive tax credits
between $400 and $2,400 based on fuel economy and vehicle size, and may
receive an additional $250 - $1,000 for lifetime fuel savings.
However, after a manufacturer sells a total of 60,000 post-2005 hybrid
vehicles, the credit will be phased out over four calendar periods. |
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This information is provided for
general information purposes only and is not intended to be used as professional
tax advice. Each individual or business tax profile is unique and other
opportunities may be better suited to your particular situation. Please
consult with us on how this
information might apply to you.
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