2006 Tax Law Changes
Dear
Clients,
Each year
brings in a host of new tax changes—and 2006 is no exception. Some of these
changes occur automatically every year. For example, the personal exemption you
claim is indexed annually for inflation. In 2006, the exemption amount is
$3,300, up from $3,200 in 2005. Other changes, however, come from recent tax
laws or new IRS regulations and rulings. This latter group tends to include the
more important changes. 2006 will have its fair share of these.
Here is a
quick look at just a few of the more significant changes for 2006:
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The tax rules phase out the
personal exemptions and itemized deductions of high-income taxpayers.
But, starting in 2006, this phase-out is scaled back. Thus, you may be
deduct more of your personal exemptions and itemized expenses than in
the past. |
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Your may be able to claim a tax
credit (a dollar-for-dollar reduction in your tax bill) of up to $500 if
you make qualifying energy-saving improvements to your home. |
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Families with college expenses
lose one of their tax breaks in 2006—the up-to-$4,000 deduction for
tuition and fees. However, other education-related tax benefits, such as
the Hope tax credit, remain in place. |
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Taxpayers who belong to eligible
401(k) plans at work may choose to make their contributions to the plan
on an after-tax basis in 2006. While this means you have to pay more
taxes upfront, you gain an advantage on the back-end: Your withdrawals,
plus accumulated earnings, can be tax-free. |
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Your chances of getting hit with
the alternative minimum tax (AMT) have increased. The AMT is a parallel
tax system with more income items and fewer deductions. You have to pay
the AMT if it’s higher than your regular tax bill. In 2006, an exemption
that protects some taxpayers from the AMT is cut back. |
Please
contact us if you would like to discuss these changes or want to find out about
other changes that may affect your 2006 tax bill.
Regards,
Joseph A. Cantatore
Accounting Services of the Hudson Valley
