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What's New for 2006
by: Robert D. Flach
 

The Internal Revenue Service has released the new inflation and cost-of-living adjustments for tax year 2006. Here are some of what is new for 2006:

* The personal exemption amount is $3,300.00.

* The deduction for personal exemptions is phased-out as your Adjusted Gross Income (AGI) goes from-

+ $150,500 to $273,100 if Single

+ $188,150 to $310,650 if Head of Household

+ $225,750 to $348,250 if Married Filing Joint or Qualifying Widow(er)

+ $112,875 to $174,125 if Married Filing Separate

* The standard deduction amounts are-

+ $ 5,150 for Single

+ $ 7,550 for Head of Household

+ $10,300 for Married Filing Joint or Qualifying Widow(er)

+ $ 5,150 for Married Filing Separate

* The additional standard deduction for age 65 and older or blind is $1,250 for Single and Head of Household and $1,000 for Married (Joint or Separate) and Qualifying Widow(er).

* The standard deduction for a dependent is the greater of $850 or the dependent's earned income (i.e. W-2) plus $300, not to exceed $5,150 (plus $1,250 if age 65 or blind).

* Itemized deductions are reduced if your AGI exceeds $150,500, or $75,250 if Married Filing Separate.

* The earnings base for Social Security withholding on wages and the Social Security portion of the Self-Employment Tax is $94,200. The maximum amount of Social Security Tax that can be withheld from wages is $5,840.40. The maximum Social Security portion of the Self-Employment Tax is $11,680.80.

* The monthly Medicare Part B premium that is deducted from Social Security and Railroad Retirement benefits is $88.50.

* The annual contribution limits for retirement plans are-

+ $15,000 - plus an additional $5,000 if age 50 or older at the end of 2006 - for 401(k), 403(b) and 457 plans

+ $10,000 - plus an additional $2,500 if age 50 or older at the end of 2006 - for SIMPLE plans

+ $4,000 - plus an additional $1,000 if age 50 or older at the end of 2006 - for IRA plans

+ $44,000 for Defined Contribution KEOGH and Self-Employed SEP plans

* The HOPE education credit is 100% of the first $1,100 of qualified tuition and fees and 50% of the next $1,100, for a maximum of $1,650.

* The maximum Section 179 deduction for expensing of business equipment purchases is $108,000. The dollar-for-dollar phase-out of Section 179 expensing begins when total equipment purchases for the year exceed $430,000.

* Employees can elect to contribute "after-tax" dollars to new ROTH 401(k) and 403(b) plans as an alternative to the traditional "pre-tax" plans, provided the plan is offered by the employer. Like the ROTH IRA, qualified distributions from employer-sponsored ROTH plans will be totally tax-free.

The 2006 standard mileage allowance rates for business, medical and moving travel have not yet been announced. Because of the recent up-and-down fluctuations in gas prices, the IRS will wail until closer to January 2006 to determine the new mileage rates.

Additional tax information for 2006, as well as the 2006 tax rate schedules, is available on the WHAT'S NEW FOR 2006 Page of my website at www.robertdflach.net.

copyright (c) 2005 by Robert D Flach LLC

 

About The Author

Robert D Flach is a tax professional with 34 tax seasons of experience preparing 1040s for individuals in all walks of life. He writes THE WANDERING TAX PRO weblog (http://rdftaxpro.tripod.com/weblog) and the free monthly online newsletter STUFF AND SUCH (http://rdftaxpro.tripod.com.weblog). He also writes and publishes THE FLACH REPORT, a quarterly print tax newsletter.