Usually, your accountant is your first phone call when the subject of taxes comes up. However, many people don’t realize that your attorney and your accountant should work together. Both professionals can strategically adjust your financial plan to implement the changes that decrease your income tax liability resulting in more money for you and/or your business.

On May 17, 2006, President Bush signed a $70 billion tax law called the Tax Increase Prevention and Reconciliation Act of 2005. Following is a description of the latest revisions to the tax law and how they pertain to you.

Tax Relief Provisions for Individuals & Businesses

• 15 percent capital gains and dividend rates were extended for two years through December 31, 2010;
  
  
• Alternative Minimum Tax exemption amount for individuals (with the ability to use certain nonrefundable personal credits against the liability) was extended for one year through 2006. The 2006 exemption amounts are $62,550 for married persons filing jointly and $40,250 for single taxpayers;
  
  
• $100,000 limitation on Section 179 Small Business Expensing was extended for two years through December 31, 2009;
  
  
• Subpart F rules related to payments between Controlled Foreign Corporations in determining foreign personal holding company income were created.

Tax Increase Provisions

• $100,000 adjusted gross income limits for individuals converting traditional IRAs to Roth IRAs were eliminated for tax years after 2009. Taxpayers converting to Roth IRAs in 2010 can elect to recognize the income from conversion in 2010 or average it over the next two years. Reminder: 2010 is the last year for the current low income tax rates before they sunset in 2011;
  
  
• Kiddie tax is now imposed on all children under the age of 18 effective beginning 2006. Previously, only children under the age of 14 were subject to kiddie tax;
  
  
• Section 199 Domestic Production Deduction limited to wages allocable to domestic gross receipts;
  
  
• Maximum foreign housing expense limitation for U.S. persons working overseas was adjusted;
  
  
• Three percent tax withholding rate imposed on certain payments for property or services made by the federal government, a state, a political subdivision of a state, or any instrumentality or agency of any of these entities, to persons providing property or services;
  
  
• Grandfather provisions for Foreign Sales Corporations and the Extraterritorial Income Exclusion binding contract rules eliminated;
  
  
• Interest paid on tax-exempt bonds subject to new information reporting requirements.

Many other expiring tax provisions are supposed to be addressed in another tax bill. Not much can be done at present except to wait and see the surprises in the next piece of tax legislation.

For further information regarding these matters, please contact Mr. Brody at 248.740.5674 or click here to send an email.