I was in exciting Las Vegas last week for a large tax planning convention. There were about 5,000 CPA's EA's and attorneys, all seeking continuing education credits on matters ranging from estate planning to small business tax planning and to new tax law changes for 2006. Here are the best and worst three.
1. HYBRID VEHICLES -- The tax breaks for hybrid cars shifts from a adjustment to a credit. Hybrid credits this year range from the Toyota Prius at $3100 to a Chevy Silverado at under $1,000. While the Prius as we all remember gives a tax break of zippo in Utah, the Toyota is the best for a Federal tax break IRS.
2. IRA DEDUCTION FOR SOLDIERS WHO HAD NONTAXABLE COMBAT PAY -- Soldiers who had nontaxable combat pay for 2003, 04, and 05 limitations on what they could put into their IRA's. The Hero Act will allow them to count combat pay as earned income overcoming the limits and allowing soldiers to make IRA contributions for any of those tax years until 2009 and the can amend tax returns to take the deduction.
3. EXEMPTION PHASE OUT TO BE PHASED OUT -- For 2006 the amount of phaseout for personal exemption can be phased out only by 2/3 of what the original amounts would have been. The wealthy who used to get 0 for personal and dependancy exemptions now get 1,100 per exemption. The rich can now get some tax benefits for their dependants.
1. KIDDIE TAX NOW KIDS UNDER 18 FROM 14 -- As a revenue raiser from TIPRA, Congress raised the age for the kiddie tax to 18 from 14. This tax change blows many tax strategies out of the water for high income taxpayers who have been anxiously awaiting the 14th birthday of their children. The kiddie tax initially was made to close a income shifting loophole in the tax code that allowed parents to shift investment income between children in order to pay less tax at their children's lower rates.
2. TUITION AND FEES DEDUCTION PASSES AWAY -- This provision that allowed students an extra method of deducting college expenses besides the two education credits rode off into the sunset.
3. STATE SALES TAX DEDUCTION DIES -- Another provision of the tax code that sunsetted last year. Ridiculous as it may be, you are once again only allowed a deduction for income tax paid and not sales tax paid. It is silly that income tax is only allowed preferance as a deduction when both taxes cut into the income of American taxpayers.
The Dumbest Tax Law Change
NO CHARITABLE DEDUCTION FOR DONATED UNDERWEAR -- Yes its true in case you were wondering, you can no longer donate used underwear and get a deduction. I guess I'll have to throw those old boxers away! Congress actually debated this issue. The speculative rumor is that this provision is a slap on the hand to Clinton who donated underwear and wrote it off.
This should be a fun week with the President in t5own, and the Rocky Andersen freak show.