Good Tax NewsPosted on Saturday, September 2nd, 2006 by Andy Jones
Ah, the festive holiday season! A roaring fire, a warm cup of eggnog and seasonal music on the sound system as the family, bundled in their jammies, gathers together to plan next years tax strategy by the light of the Christmas tree. OK, so that may not be the tradition at your house. But at our house, the approach of the New Year always prompts a look ahead at some of the tax changes that will affect your 2006 tax return. Eggnog optional, of course.
Not that theres much time left to, say, rush out and purchase a hybrid vehicle for businessuse and thereby collect the deduction. But it can be comforting to know that a smattering of good tax tidings await you when you file your taxes in April, regardless of whether youve been naughty or nice. Heres what Santa is bringing you from the IRS this year:
Increased Retirement Plan Contributions
As every tax-savvy trader knows, a penny saved is actually more than a penny earned, thanks to favorable tax treatment of most retirement accounts, up to a maximum annual cap. This year, theres good news for savers, especially those age 50 and over. Contribution limits for 401(k) plans increase by $1,000 in 2006, to $15,000. If youre 50 or older, you can make an additional $5,000 catch-up contribution tax-deferred, up from $4,000 last year.
Beginning in 2007, contribution limits to 401(k) s, which have been increasing by $1,000 annually for the past few years, will be indexed to inflation, and the cap will only increase when adjustments reach $500. So be sure to enjoy this last guaranteed cap increase. Although contribution limits will remain unchanged for Individual Retirement Accounts ($4,000) and SIMPLE IRAs ($10,000), if you are 50 or older, you can sock away an additional $1,000 into your IRA, compared to $500 last year, and an extra $2,500 into your SIMPLE IRA, up from $2,000 in 2005.
Increased Personal Exemption
Good news for traders with families: your personal exemption for each family member you support increases to $3,300 this year, up $100 from 2005. Tax Bracket Adjustments If your taxable income fluctuates around the $30,000 mark, you may be among a small group of traders whose taxes will decrease this year, due to an adjustment in the standard tax brackets.
In 2006, for single filers, the top end of the 15% tax bracket adjusts upward from $29,700 to $30,650. If your taxable income for this year falls between those two numbers, you just dropped from the 25% tax bracket into the more comfortable 15% club. On the lowest tax levels, an upward adjustment in the 10% bracket from $7,300 to $7,550 results in a similar tax break for traders whose taxable income falls within that range. What will you do with the tax savings? Contact Traders Accounting today.
Our experienced professionals can help you build an efficient tax strategy to better grow your business . Energy Efficient Incentives The Energy Policy Act of 2005 provides its own bag of tax incentives from which to choose if you qualify, the most popular being a tax credit of up to $2,600 for gas-electric hybrid, diesel or other alternative-fuel vehicles purchased for businessin 2006.
Theres a catch or two: the vehicle must be a passenger car, light truck or SUV, you must buy the vehicle new, not used, and you must intend to keep it, not sell it. For a list of qualifying vehicles, visit the IRS site, Summary of the Credit for Qualified Hybrid Vehicles (http://www.irs.gov/newsroom/article/0,,id=157557,00.html). Tax credits also are available for such energy-efficient home improvements as solar heating units, additional insulation, replacement windows, external doors and skylights, sealing cracks in your house and installing a pigmented metal roof. For more information energy-efficient tax credits, visit the Tax Incentive Assistance Project website (http://www.energytaxincentives.org/).
Section 179 Deductions
Section 179 of the IRS code enables you to recover all or part of business -related tangible property (excluding real estate) in the year you placed it in service, instead of depreciating it over several years. In 2003, Congress increased the Section 179 deduction limit from $25,000 to $100,000. Last spring, it bumped the 2006 limit to $108,000. Traders typically dont have businessneed for the big-ticket items that press the limits of a Section 179 deduction, things like research facilities, agricultural and horticultural buildings, livestock and petroleum storage tanks. But this year, Congress included off-the-shelf computer software in its list of eligible property. A Traders Accounting professional can advise you on whether claiming your new office equipment, telephone, computer or software under Section 179 would be to your advantage tax-wise.
Standard Mileage Rate
After a turbulent 2005, which saw the standard mileage rate seesaw from 40.5 cents a mile to 48.5 cents per mile due to the ripple effects from Hurricane Katrina, the rate for 2006 is 44.5 cents per mile. Gift Tax Exclusion The annual amount you can give a person other than your spouse without incurring gift tax increases this year to $12,000, a $1,000 bump from the rate it had been at for the previous four years. The only constant is change when it comes to trader taxation. The more knowledgeable your team of advisors, the better prepared youll be to take advantage of the changes that are sure to come every year. This holiday season, give yourself the gift that keeps on giving: good tax planning from the best in the industry – Traders Accounting. Well make sure that your tax strategy is working as hard to keep your money as you do to make it.