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Three tax laws
•Energy Tax Incentives Act of 2005 provides the business
community with tax deductions and credits for qualified
energy-related expenditures.
•For those businesses that purchase qualified energy-efficient
vehicles
-effective for property placed in service after 12-31-05 and
before 1-01-10
-the credit ranges from $250 for a GMC Sierra 2WD hybrid pickup
to $3150 for a Toyota Prius (originally) ..but Toyota and Lexus
products were reduced by 50% effective 10-01-06 because the sale
of these vehicles reached 60000
•Install qualified energy-efficient systems in a commercial
building
•Contractors constructing qualified energy-efficient homes
-Effective for homes substantially completed after 8/8/05 and
sold after 2005 and before 2008
-Contractors who construct or reconstruct qualified
energy-efficient homes in the US may be eligible for a new tax
credit of $2000 for each home. The homes must be certified to
have met the IRS guidelines.
-If you build or renovate a commercial building in compliance
with specified energy-efficient standards and you place
energy-efficient components of that building in service in 2206
or 2007, you may be able to take an up-front deduction of the
lesser of the cost of qualifying “energy efficient commercial
building property or $1.80 per square foot of the building.
•Pension Protection Act of 2006 makes changes to the rules of
contributions to and distributions from qualified retirement
plans and significantly changes the charitable contribution
deduction.
-Starting in 2006 employers could adopt provisions in their
401(k) plans offering employees the option to contribute all or
a portion of their 401(k) elective deferrals into a 401(k) Roth
account.
-Effective for plan years beginning after 2007, a 401(k) plan
that contains an automatic enrollment arrangement meeting
certain requirements is treated as satisfying the
nondiscrimination rules. In addition, a plan whose only
contributions are contributions made pursuant to a qualified
automatic enrollment feature and specified employer matching
contributions is not subject to the top-heavy rules.
•Tax Increase Prevention an Reconciliation Act extends the lower
capital gains and dividends tax rates and the increase in
Section 179 deductions for two additional years, and changes the
wage limitation in calculating the new production deduction.
-Section 179 deduction is extended through 2009. The 2006
deduction limit is $108,000 and 2007, the limit is $112,000.
-Effective for tax years beginning after 5/17/06, the wage
limitation is modified such that taxpayers may only include W2
wages properly allocable to domestic production gross receipts.
(manufacturing, construction, engineering and architectural
services, energy production, farming, mining, film production,
software development, production of sound recordings and the
processing or storing of food products.
•Other Recent Developments Impacting Businesses
-Optional mileage deduction for 2007 is 48.5 cents per mile.
-Some vehicles weighing over 6000# are still entitled to the
maximum Section 179 deduction. For example, a pick-up truck with
a cargo area of at least 6 feet of interior length and a van
with a seating capacity of more than 9 persons.
-Telephone Excise Tax Refund – Taxpayers other than individuals
generally have to compute the actual amount of telephone excise
tax thy paid after February 28, 2003 and before August 1, 2006.
There is an estimation method, but is requires telephone expense
by designated periods.
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Tax Changes Effecting Individuals
Three Tax Laws
1.Energy Tax Incentives Act of 2005 – for consumers who install
qualified energy-efficient devices in their homes or buy
qualified energy-efficient vehicles. These tax breaks are
generally first available in 2006.
•New Hybrid Motor Vehicle Credit.
-effective for property placed in service after 12-31-05 and
before 1-01-10
-the credit ranges from $250 for a GMC Sierra 2WD hybrid pickup
to $3150 for a Toyota Prius (originally) ..but Toyota and Lexus
products were reduced by 50% effective 10-01-06 because the sale
of these vehicles reached 60000.
•New $500 Lifetime Energy-Savings Home Improvement Tax Credit
-Applies to qualified energy-savings property with respect to
your “principal residence” in 2006 or 2007.
-There is a $200 lifetime limit for energy-saving windows, a $50
limit for advanced main air circulating fans, a $150 limit for
any qualified natural gas, propane, or oil furnace or hot water
boiler, and a $300 limit for energy efficient electric heat
pumps, water heaters, and central air conditioners.
-IRS says that you can generally rely on written credit
certification in the packaging or on the manufacturer’s website.
•New Residential Alternative Energy-Generating Equipment Credit.
-A new 30% tax credit for 2006 and 2007
-The two most common qualifying equipment are solar water
heaters and modular solar panels
2.The Pension Protection Act of 2006
•Trustee-to-Trustee transfer allowed from Deceased qualified
retirement plan account to IRA naming non-spouse beneficiary.
Effective for distributions after 2006.
-The transferee IRA will be treated as an “inherited IRA”
-Beginning in 2007.
-Not a rollover
-Allows the non-spouse to take distributions over their life
expectancy
•Tax refund may be paid directly to your IRA.
-To be deducted on your 2006 return, you need to file your 2006
return early enough so that your refund will be deposited in
your IRA account by the IRS no later than April 16, 2007
-The IRA must be established before the direct deposit request
is made.
-The IRA custodian must be notified the direct deposit is to be
treated as a 2006 contribution.
•Certain Military Personnel Granted New Relief from Early
withdrawal Penalty
•Temporary Tax-Free IRA payments to Charities.
-Effective for 2006 and 2007
-Reached the age of 701/2
-Does not apply to distributions from Simple IRA and SEP
-Counts toward any minimum required distribution.
-Limit $100000
•New Restrictions on Charitable Contributions of Clothing and
Household items.
-Effective for contributions made after August 17, 2006
-No deduction will be allowed for charitable contributions of
clothing or household items unless the items are in “good used
condition or better.”
•New Recordkeeping requirements for contributions made in cash
or check.
-Effective for contributions made after August 17, 2006.
-The contribution must be supported by a cancelled ck, a
receipt, or written communication from the charity.
-Any contribution of $250 or more still required a written
receipt including a statement indicating whether or not goods or
services were received in return for the contribution
•Tax Increase Prevention and Reconciliation Act of 2005
•Kiddie tax now applies to children under age 18 rather than age
14.
-Tax Tip – Since earned income is exempt from the kiddie tax,
paying reasonable wages to children under age 18 from a family
business becomes an even more valuable tax strategy.
•Income limitation for traditional –to-Roth IRA conversions
eliminated after 2009
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Tax
Changes Affecting Businesses
