2006 Tax Law Changes

There were several important changes to tax law for 2006 that came about due to a number of reasons:

• Sweeping changes made in 2002
• Dramatically rising energy costs in 2005
• Hurricane Katrina

Here's a pretty comprehensive list of changes you will find on your 2006 tax return.

Mileage Rates Changes
For businesses where automobile travel is an issue, the IRS increased the mileage rate to 40.5 cents per mile for any business use of your car. And for the final four months of the year, this was increased to 48.5 cents per mile.

For medical care or a move, you can deduct 15 cents per mile and for the last four months, there was an increase to 22 cents per mile.

The above figures are scheduled to go back down for 2006.

Your IRA
You were able to put away up to $4,000 on your IRA or Roth IRA for 2006. For those over 50, the ceiling figure was $4,500.

You can phase out traditional IRA's if your AGI is above a certain threshold. Your tax preparer will have details pertinent to you personal financial information.

Standard Deduction Increased
The basic standard deduction is now:

• $7,300 for the head of household
• $10,000 for all married taxpayers who file jointly as well as qualifying widows or widowers
• $5,000 for married taxpayers who file separately
• $5,000 for single people

SIMPLE Plan Contributions Increase
For those 50 or older, salary reduction contributions made by an employer to a SIMPLE plan on your behalf are increased.

Exemptions Increase
Each exemption now has a maximum deduction increase of $100 to $3,200 in 2005. You can learn more from your tax preparer or from some of the top tax preparation services online.

Tuition Fees
You may be able to get a deduction of up to $4,000 if your Adjusted Gross Income (AGI) is less than $65,000.

Hybrid Car Owners
Qualified hybrid vehicles purchased in 2005 can entitle you to a tax credit. If you put a hybrid car into service for your business this year, you can claim the maximum electric vehicle credit (the 50% reduction has been eliminated). The same goes for a qualified clean fuel vehicle.

You can get more information from the IRS or from any tax preparation service, as you file your 2006 tax form.

Clunker Donations
The IRS has cracked down on deduction rules for clunker donations. Previously, the cars were assessed at fair market value. But now, the deduction amount is contingent upon which is lower: market value or the amount for which the car is eventually sold. This better reflects the actual charitable donation that is finally given.

File Deadline
The 15 th of April falls on a Saturday, so you have an extra two days to file, by Monday April 17 th , 2006. Use them wisely to review all your figures and make sure you have all the deductions you deserve.

Katrina
The name we all know so well now, that we don't even call it a plain old hurricane. It even got its own tax act, the federal Katrina Emergency Tax Relief Act of 2005. If you were affected by the storm or if you donated aid to Katrina victims, you will be covered by special provisions this tax year.

Some examples of provisions of the act:

• If you provided a home for evacuees for at least 60 days, you may qualify for tax credits of up to $2000.
• Previous provisions limiting taxable donations to 50% of your AGI are rescinded. You can now claim up to 100% of your income, if that's what you donated.
• Certain provisions of the act extend into 2006 as well, so don't let donor fatigue get you down.

If you click on the links nearby, you will learn about all the changes that affect your 2006 tax return.