The end of the year is rapidly approaching. While 2005 ends one tax session and begins another, it’s important to be familiar with the tax law changes that take effect on January 1, 2006. A visit to the IRS web site illustrates the changes that are coming. Some of the tax code changes will affect the business and others the individual taxpayer and for still others, both will affect them.
In short form, the changes for 2006 are:
Increased Retirement contribution limits (401(k) and 403(b) increases to $15,000)
Taxpayers who are at least age 50 before the end of 2006 can increase their contribution limits by the following amounts for the following plans (called the catch-up contribution limit):
An additional $5,000 for 401(k), 403(b), salary reduction SEP plans, and 457 plans
An additional $2,500 for SIMPLE plans
An additional $1,000 for IRAs (both traditional and Roth IRAs)
There will be higher income limit for deductible IRAs.
For homeowners, credits will be offered for energy saving upgrades that are made to the house. The credits will be about 10 percent of the total cost of the changes or for qualifying materials.
Expect a new credit for the purchase of Energy Efficient vehicles. This is an update or replacement for the Clean Fuel Deduction. Hybrid vehicles are eligible for a tax credit of up to $3400.
Increased Section 179 Expense Deduction where the maximum amount increases from $105,000 to $108,000 in 2006.
Sales Tax Deduction expires after 2005.
Reduction in Itemized Deduction Limits for High-Income Taxpayers, which means that currently, itemized deductions are phased out (reduced) as your income rises. Starting in 2006, the deduction phase-out will be reduced by one third. In 2008, it will be reduced by two thirds, and in 2010, the phase-out will disappear entirely.