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Horizon Accountants  

Horizon Accountants
113 South Timber Way
Broadway, VA 22815

540-896-3330

Certified Public Accountant

Tax Law Changes For 2006

Energy Credits, Individuals

10% Deduction: skylights, outside doors, windows, metal roofs, high-efficient furnaces, water heaters, home siding*, central air conditioning & insulation;  max credit is $500 and no more than $200 can be attributed to windows;  residence only;   *home siding is eligible if installed before December 1, 2006 

30% Deduction: solar energy systems used to heat air or water:  pools & hot tubs not included;  max $2000 each for furnaces and water heaters; residence & vacation home **Records to keep: receipt & Manufacturer's Certification Statement

Energy Credits, Business

Home Builders: energy efficient homes sold in 2006 available for max credit of $2,000 per house; overall efficiency of home 50% = $2,000 tax credit --- 30-49% $1,000 tax credit;  see IRC Notice 2006-27 & 2006-28 for construction guidelines.

30% Deduction: businesses using solar heating systems or fuel cells to generate power.

Commercial Realty: 50%+ energy-saving improvements can be expensed up to $1.80 per square foot of floor space;  16.67% - 49.99% write-off is $0.60 per square foot.

Estate Tax

Exemption: $2 million 2006-2008; increase in 2009 to $3.5 million. Beneficiaries: nonspousal heirs can now transfer IRA to their own IRA without penalty instead of a payout over five years;  this change effects siblings, children, grandchildren, and unmarried domestic partners of employees.

Education Credits

Hope Credit: raises to $1,650;  Hope and Lifetime Learning doubled for spring in Katrina areas

Gift Tax

Exemption: $12,000 per donee

Itemized Deductions

High Incomes: AGI over $150,500 then itemized deductions are cut by 2% for income greater than $150,500.

Savings Plans

401(k), 403(b), 457, Roth 401(k):  maximum pay in = $15,000

Roth IRA

Contribution Limit: $4,000; extra $1,000 for 50+

SS Benefits Lost

Between Ages 62 - 65 years, 8 months: can make $12,480;  each $2 over that $1 of benefits are lost.

Turning 65 years, 8 months during tax year: can make $33,240 until they reach that age;  for each $3 over that amount $1 of benefits are lost;  no cap for anyone over 65 years, 8 months.

H.S.A.

Contribution Limit: family = $5,450 and singles = $2,700;  age 55+ an additional $700 ceiling on Out-of-Pocket Expense: family = $10,500; single = $5,250

Sec. 179

Expensing Limit:  $108,000; starts phasing out of  $430,000 of assets are placed in service

Mileage Deduction

Business: $0.445
Moving: $0.18
Medical: $0.18
Charitable: $0.14 
Charitable - Hurricane Katrina Relief: $0.32 

AMT

Exemption: MFJ - $62,550  S - $42,500

Capital Gains

15%:  extended through 2010.

0%: low incomes for tax years 2008-2010 (10-15% brackets)

Kiddie Tax

Age 17 and Under: any unearned income over $1,700 will be taxed at the parents marginal tax rate; (previously 14 and under)

Child Care Credit

New Benefit: specialty camps (i.e. computer, sports, etc.) can be included in the cost of dependent care assuming the child is under 13 and the time spent at camp is used to allow the parents to work during that time;  overnight camps do not qualify 

New Benefit: Deposits made to hold a spot in preschool are deductible, but only if the child begins attendance and not if the deposit is forfeited;  kindergarten not eligible

*Regulations still in proposed form, but IRS says these changes can be relied upon until final regulations are  issued

S-Corp Health Ins. Reminder

Insurance Policy:  it must be purchased in the name of the S-Corp to be 100% deductible, otherwise it is a Sch. A deduction subject to 7.5% of AGI.

Hybrid Vehicles

Form 8910:  be sure to use this form to calculate the credit and report the amount on line 55c of Form 1040.

IRA's

Charitable Contributions:  $100,000 can be directly donated to charity from a regular or roth IRA if the owner of the IRA is 70 1/2 when the donation is made and the donation can not support a donor advised fund, supporting private foundation, or remainder trust; no value can be received from donee to donor;  donors must have receipt from donee before claiming deduction on their tax return, therefore it's important that the donee knows whose account the donation is coming from;  effective for tax years 2006 & 2007.

Tax Refund: can be sent directly to an IRA after 2006

10% Penalty Receives More Exceptions: Reservists called to active duty for more than 179 days or an indefinite period of time can withdrawal from an IRA penalty free &  the law is retroactive to 9/11/01.  If tax year is closed the taxpayer has one year from the laws enactment to claim a refund on 1040-X;  AGI Ceiling:  is to be removed after 2009 for Traditional-IRA-to-Roth-IRA rollovers

Pension Plans

Early Withdrawal State & Local Pensions More Exceptions: Firefighters, Police, & EMS Technicians who retire after turning 50 are exempt from 10% penalty;  also public safety officers with qualified retirement plan (i.e. government retirement for annuity plan, 403(b) annuity, or 457 plan) can withdrawal up to $3,000 a year for health insurance or long term care insurance policies.

Charitable Contributions

Substantiation Tightened:  A log is no longer sufficient for cash contributions.  Donor will need a canceled check, bank record, or receipt from donee listing the organizations name, amount of contribution, date of contribution; any gift with a value of $500 or more must have an appraisal.

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