Tax Saving Tips for 2006 Advice from CPAs

Tax Law Changes Recent Tax Law Changes Retirement Plans “Kiddie Tax” Charitable Giving

Pension Protection Act of 2006 Retirement Provisions Makes permanent higher IRA contribution limits Continued “catch up” IRA contributions Saver’s credit becomes permanent

Charitable Giving Provisions Charitable contributions directly from IRA Documentation required for monetary donations Donated items must be in “good” condition

529 Plan Benefits Made Permanent Tax-free withdrawals from 529 Plans are permanent Provision was set to expire in 2010

Tax Increase Prevention and Reconciliation Act of 2005 New “Kiddie Tax” Rules New “Kiddie Tax” Rules “Kiddie Tax” now in effect until age 18 Makes income shifting to children less advantageous

IRA Conversions Convert traditional IRAs to Roth IRAs in 2010 Qualified retirement plans to Roth IRAs in 2010 Tax liability can be spread over two years

Tax Breaks for Energy Efficiency A credit of up to $3,400 for the purchase of hybrid or alternative fuel vehicle Energy efficient home improvements may earn $500 credit Purchase of solar water heaters may garner a credit of up to $2,000

Extended Tax Breaks Option to deduct sales tax instead of state and local taxes Higher education tuition deduction Out-of-pocket classroom expense deduction Be sure to consult for more informationwww.irs.gov

Filing Basics Filing Status Married filing jointly Married filing separately Single Head of Household Qualifying widow(er)

2006 Tax Rates 10% 15% 25% 28% 33% 35%

Standard Deduction FilingStandard StatusDeduction Single$ 5,150 Married filing jointly$10,300 Married filing separately$ 5,150 Head of Household$ 7,550 Qualifying widow(er)$10,300

Standard Deduction Taxpayers 65 and older and/or blind get an additional standard deduction Married - $1,000 Single or Head of Household - $1,250

Itemizing Deductions An alternative to the standard deduction Use when these deductions exceed standard deduction Phase-out rules apply -- Single/joint/head of household -- $150, Married filing separately -- $75,250

Personal Exemption Filing StatusPhase-out Phase-out startsends Joint return $225,750 $348,250 Head of Household $188,150 $310,650 Single $150,500 $273,000 Married filing $112,875 $174,125 separately

Timing Strategies Control tax bill by – Deferring income, such as bonuses Accelerating deductions, such as qualified charitable contributions Bunching deductions that are based on a percentage of AGI

Tax Strategies for Life Family Education Home Investments Retirement

Child Credit Adoption Credit Dependent Care Credit Earned Income Credit Shifting Income Family Strategies

Child Credit Child must be under 17 at year end Child must be claimed as a dependent $1,000 credit per child Reduces tax bill dollar-for-dollar Phase-out for higher income families

Adoption Credit Credit of up to $10,960 per eligible child Exemption for first $10,960 reimbursed by employer Parents adopting special needs child get full credit, regardless of actual expenses

Dependent Care Credit Child must be under 13 and a dependent Tax credit from 20% to 35% of qualifying expenses Use up to $3,000 of expenses ($6,000 for two or more dependents) to calculate credit Not restricted to children

Family SizeMaximum Credit Two or more $4,536 children One child$2,747 Earned Income Credit

Shifting Income Consider gifts to children – up to $12,000 without being subject to gift tax Hire your children First $5,150 earned by each child is tax free Not subject to kiddie tax

Hope Credit worth up to $1,650 per student, per year Applies to first two years of college only Phase-out applies Single -- $45, $55,000 Joint -- $90, $110,000 Education Strategies Tax Credits

Lifetime Learning Credit of up to $2,000 per year Applies to undergraduate, graduate and professional courses Phase-out applies

Student Loan Deduction Deduct up to $2,500 No need to itemize No limit on repayment period length $50,000 to $65,000 – phase-out range for single filers $105,000 to $135,000 – phase-out range for married filing jointly

Higher Education Tuition Deduction Deduct up to $4,000 Phase-out limits apply Single: $65,000 -$80,000 Married: $130,000 - $160,000 No need to itemize Visit for more informationwww.irs.gov

Homeowner Strategies Deductions Mortgage interest on first and second homes Up to $100,000 in home equity loan or line of credit interest Points paid on mortgage or refinancing Real estate property taxes

Selling Your Home Exclude up to $250,000 in capital gains from sale of home; $500,000 for joint filers Must own and use home as principal residence for two out of five years Eligible only once every two years Reduced exclusion available

Investment Strategies Dividends Top dividend tax rate of 15% Rate is 5% for taxpayers in 10% and 15% brackets Check ex-dividend date Does not apply to interest payments

Capital Gains Tax Maximum tax rate on long-term gains is 15% 5% for taxpayers in 10% and 15% brackets Asset must be held more than one year Does not apply to collectibles

Offset Capital Gains with Losses Capital losses offset capital gains $3,000 ($1,500 for married, filing separately) in net capital losses can be deducted against ordinary income Beware of wash sale rule

Retirement Strategies Employer-Sponsored Plans Contributions help reduce tax bill Take advantage of employer matches $15,000 is 2006 maximum contribution $5,000 additional contribution for age 50 and older New for 2006 – “Roth 401(k)”

IRAs $4,000 is maximum 2006 contribution $1,000 additional catch-up contribution for age 50 or older Phase-out applies Open by April 16, 2007

C Corporation S Corporation Partnership Limited Liability Company Sole proprietor Business Strategies Structure

Expensing Deduction Deduct up to 100% of the cost of up to $108,000 in property Applies to new or used property Equipment must be put into service by December 31, 2006 Now applies to software Phase-out rules apply

Additional Business Strategies Deduct 100% of health insurance costs if self-employed Defer income and accelerate deductions Write off bad debt Make the most of business-related deductions – travel, auto, meals and entertainment and interest expenses

Year-End Tips Charitable Deductions Donate appreciated property and avoid capital gains tax Donate clothing, household goods, furniture in good condition and deduct fair market value Volunteer your time and deduct qualified travel and related expenses

Flexible Spending Accounts Reduce taxable income Use up remaining 2006 balances Over-the-counter drugs are now allowable

Avoid AMT AMT triggers: Higher than average dependency exemptions Large deductions for state and local income taxes and real estate taxes High miscellaneous itemized deductions and medical expenses Incentive stock options

Focus on tax savings year-round Consider year-end opportunities Get help if you need it Planning for Success