Tax Year 2006 Tax Law Changes for Individuals
Split Refund Option
Tax payers receiving their return by direct deposit now have more options in allocating their tax return from the IRS. They can opt to allocate their refund in up to three accounts: Checking and regular savings accounts, individual retirement arrangement (IRAs), Coverdell education savings accounts and health saving accounts. Tax payers must complete IRS Form 8888 to take advantage of these options. Tax payers that would like to continue to deposit all of their refund into one account should complete the IRS Form 1040 series.
Telephone Tax Refund
For one time only, the IRS is giving a tax return for long-distance excise taxes that the government believes should not have been collected. Eligible tax payers are those who paid long-distance taxes on landline, cell phone or Voice over Internet Protocol (VOIP) - calls via a computer. Tax payers can claim the telephone tax refundable credit by filing IRS Form 8913, claiming either a standard refund ranging from $30 to $60 based on the number of exemptions (number of phone used). Tax payers that are not required to file an income tax return can collect the refund by filing IRS Form 1040EZ-T (new form).
Exemption Amount Increased
The amount for each personal exemption has increased from $3,200 in 2005 to $3,300 in 2006. One caveat: exemption amount are reduced as your adjusted gross income reaches beyond a certain amount. The amount at which the phase-out begins depends on your status and income level.
For tax payers filing as single the phase-out point is $150,000
For tax payers filing as Head of Household the phase-out point is $188,150
For married tax payers filing separately the phase-out is $112,875
For married tax payers filing jointly or qualified widow(er) the phase-out point is $225,750
Residential energy credits for homeowners
Residential energy credits can be claimed on IRS Form 5695. Tax payers are qualified to receive a maximum credit of $500 for new property. A sum of10% of the qualified energy efficiency improvement, such as insulation, exterior windows and skylights, exterior doors, coated metal roofs - additions that reduce heat gain and control the temperature can be claimed as credit. However, 100% of the cost of eligible heat pumps, central air units, and water heaters (up to $300), natural gas propane, or oil furnaces, hot water boilers ($up to $150) and advance main air circulating fans (up to $50) is creditable. In addition, 30% of the cost of eligible photovoltaic, solar water heating, and eligible fuel cell property coast is creditable.
Alternative Motor Vehicle Credit
For 2006, the list of motor vehicles that are eligible hybrid vehicles for the Alternative Motor Vehicle Credit has risen. The tax credit for hybrids concerns only vehicles bought after January 1, 2006. The Tax credit maximum is $3,400 for the most fuel efficient vehicles. Tax payers that are qualified for the Alternative Motor Vehicle Tax Credit should complete IRS Form 8910.
Standard Deduction Amount Increase The standard deduction for tax payers who do not itemize deduction on Schedule A is, in most instances, higher in 2006 than that of 2005. The amount of the deduction is depends on the tax payer filing status, whether the tax payer is 65 or older or blind and whether an exemption can be claimed on behalf of the tax payer by someone else. The 2006 standard deduction is as follows:
Taxpayer filing as Head of Household: $7,550
Married filing jointly and qualified widow (er): $10,300
Married filing separately: $5,150
Filing single: $5,150
In the case where an individual may be claimed as a dependent by another taxpayer the standard deduction amount for that individual should not exceed the $850 or the sum of $300 and the individuals' earned income, which ever is the greatest.
Charitable Deductions All charitable contribution of clothing and household items not where not in good use conditions that were made after August 17, 2006 are not qualified as deductible.
All cash contributions made after August 17, 2006 must be verifiable by a bank record or receipt.
For tax after 2005, the adjusted gross income (AMI) limit and carryover period is increase for qualified conservation contributions
Earned Income Credit The Maximum amount of income a taxpayer can earn and still be eligible for the earned income tax credit (EITC0 is higher for 2006. The show the different tax status and earn income credit levels:
Single, Head of Household, and Qualifying Widow (er)
No Children --- Maximum EIC $412 --- Maximum Earnings Before EIC Eliminated $12,210
One Child --- Maximum EIC $2,747 --- Maximum Earning Before EIC Eliminated $32,001
Two or more Children --- Maximum EIC $4,536 --- Maximum Earning Before EIC Eliminated $36,348
Married Filing Jointly No Children --- Maximum EIC $412 --- Maximum Earnings Before EIC Eliminated $14,120
One Child --- Maximum EIC $2,747 --- Maximum Earning Before EIC Eliminated $34,001
Two or more Children --- Maximum EIC $4,536 --- Maximum Earning Before EIC Eliminated $38,348
Social Security and Medicare Taxes For 2006, the employer and employee will continue to pay 6.2% each for Social Security tax, and 1,45 each for
Medicare tax. For Social Security the maximum amount of 2006 wages subject to the tax increases from $90,000 to $94,000; in the case of Medicare tax, all covered 2006 wages are subject to tax.
Increase in age for Children Taxed at Parent's Rate on Unearned Income
Certain children under the age of 18, and who are not married, and have investment income of more than $1700 must file IRS Form 8615 and pay tax at the parent's rate on the amount over $1700. Prior to 2006 the qualifying age was 14. The increase to the age of 18 also relates to parent's election on IRS Form 8814 to include in the parent's income certain unearned income of the child.
Increase in Alternative Minimum Tax (AMT) Exemption Amount The 2006 exemption amount has increased.
Single or head of household: $40,250 to $42,500
Married filing jointly or qualifying widow (er): $58,000 to $62,000
Married filing separately: $29,000 to $31,275
IRA Deduction The maximum deductible contribution increases from $4,000 to $5,000 for taxpayers age 50 or older at the end of the year. However, the maximum of $4,000 remains in effect for all other taxpayers. The AGI phase-out range increase to $75,000 from $85,000 for married taxpayers filing jointly and qualifying widow (er)s. There is no change in the phase-out range for other taxpayers.
Higher Limits for Employee Contributions to 401 (k), 403 (b), 457, and SIMPLE Plans
The maximum has increased to $15,000, and for the SIMPLE plans, $10,000. Employees age 50 and older may contribute $5,000 more, and $2,500 for the SIMPLE Plans.
Article Source: http://EzineArticles.com/?expert=Earnest_Young
