The Tax Increase Prevention and Reconciliation Act, signed on
May 17, 2006, provides benefits if you’re subject to the AMT, or
are an investor, business owner, or IRA holder. The new law is less
generous when your kids have unearned income or if you work
abroad.
The Tax Increase Prevention and Reconciliation Act, signed on May 17, 2006, provides benefits if you’re subject to the AMT, or are an investor, business owner, or IRA holder. The new law is less generous when your kids have unearned income or if you work abroad.
Here’s an overview:
Alternative minimum tax
The law increases AMT exemptions for 2006. If you’re married filing jointly, the amount you can use to reduce taxable income for AMT purposes is $62,550 ($42,500 for singles). In addition, you can apply nonrefundable personal credits such as Hope scholarship and lifetime learning credits to offset the AMT in 2006.
Investors, business owners
Increased Section 179 asset expensing ($108,000 for 2006) is allowed through 2009, and reduced rates on long-term capital gains and dividend income (15% for the highest brackets) will remain in place through 2010.
Roth IRA conversions
Starting in 2010, you’ll be able to convert a traditional IRA to a Roth no matter the amount of your adjusted gross income. You’ll still have to include the conversion amount on your return and pay the tax, but you can spread that amount over two years for conversions made in 2010.
The kiddie tax
In the past, when your under-age-14 child had interest, dividends, capital gains, and other unearned income over a specified amount ($1,700 for 2006), you were generally required to pay tax on that income at your rate. At age 14, your child could file a separate return and pay tax at what was typically a lower rate. Under the new law, beginning with 2006 tax returns, your child’s unearned income over the specified limit is taxed at your rate until age 18.
Working abroad
Changes include indexing the foreign earned income exclusion (raising the maximum exclusion to $82,400 for 2006) and a limitation on the foreign housing exclusion.
For details on how the law could affect your tax planning, contact us.
