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August 2, 2005
The IRA contribution limit is up to $4000 and the catch up for those over 50 is $500.
There is no need to amortize start-up or organizational expenses less than $5,000 anymore.
There are two sets of $5,000 limits: one for start-up and one for organizational expenses.
Section 179 depreciation deduction is limited to $25,000 for SUVs less than 14,000 pounds. Pickups with full-size cargo beds, vans designed to seat more than nine and specially equipped work vehicles still qualify for full Section 179 expense deduction in year of purchase.
Self rental losses (from activities that are not specifically set up as another legal entity) are subject to the passive activity rules, see us for details.
The current 15% rate on dividends and capital gains expires after 2008.
Alternative minimum tax becomes an issue when the taxpayer has large capital gains for regular tax purposes, large miscellaneous itemized deductions, high number of personal exemptions, and state and local income taxes.
The AMT exemptions revert back to lower amounts in 2006 and will snare one in four taxpayers next year.
The Section 179 depreciation deduction is not available for tangible personal property used in most rental businesses. Also excluded are air conditioning and heating units.
Tax Planning Ideas
By employing your child or grandchild, age 17 or under the taxpayer can shift income from the parent to the child. The compensation must be reasonable. This typically results in the child paying no tax due to child’s standard deduction. Wages paid to children also are exempt from payroll and unemployment taxes.
There is a new production income deduction that is available to all farmers and U.S. manufacturers of products beginning in 2005. We are prepared to provide you with the benefits of this deduction. See us for more details on this deduction.
If a business vehicle is subject to depreciation limits or subject to standard mileage allowance it may cause the tax basis to become greater than the market value. If this is the case it makes sense to sell it than trade it, as a current loss would be deductible.
The recently passed Energy Bill in July 2005 does provide tax credits and incentives, however, most are not available until 2006.
Lawrence R. Yoder, CPA