2006 Federal Tax Law Changes for Individuals

[Marti]

Standard Deduction Amount Increased

The standard deduction for taxpayers who do not itemize deductions on
Schedule A of Form 1040 is, in most cases, higher for 2006 than it was for 2005.

The amount depends on your filing status, whether you are 65 or older or blind,
and whether an exemption can be claimed for you by another taxpayer.

The basic standard deduction amounts for 2006 are:

Head of household — $7,550
Married taxpayers filing jointly and qualifying widow(er)s — $10,300
Married taxpayers filing separately — $5,150
Single — $5,150

The standard deduction amount for an individual who may be claimed as
a dependent by another taxpayer may not exceed the greater of $850
or the sum of $300 and the individual's earned income.

[Marti]

Exemption Amount Increased

The amount you can deduct for each exemption has
increased from $3,200 in 2005 - to - $3,300 in 2006.

You may lose part of the benefit of your exemptions if your
adjusted gross income is above a certain amount.
The amount at which the phaseout begins depends on your filing status.

For 2006, the phaseout begins at:

$112,875 for married persons filing separately,
$150,500 for single individuals,
$188,150 for heads of household, and
$225,750 for married persons filing jointly or qualifying widow(er)s.

If your adjusted gross income is above the amount for your filing status,
use the Deduction for Exemptions Worksheet in the Form 1040 instructions
to figure the amount you can deduct for exemptions.

[Marti]

Standard Mileage Rates

For tax years beginning in 2006,
the allowable deductions for the standard mileage rate are as follows:

Business miles. The standard mileage rate for the cost of operating
your car changes to 44.5 cents a mile for all business miles driven.

Charitable services. The standard mileage rate allowed for use of your car when you use your car to provide charitable services to a charitable organization is 14 cents a mile.

Charitable services — Hurricane Katrina relief services. If you used your vehicle in giving services to a charitable organization to provide relief related to Hurricane Katrina, the standard mileage rate allowed for use of your car is 32 cents a mile.

Medical reasons. The standard mileage rate allowed for use of your car for
medical reasons is 18 cents a mile.

Moving. The standard mileage rate for determining moving expenses is 18 cents a mile.

[Marti]

Restrictions on Charitable Contributions

Cash contributions.
All cash contributions made in tax years beginning after August 17, 2006,
to any qualified charity must be supported by a dated bank record or a dated receipt.
The tax year for most individual taxpayers begins on January 1.

Clothing and household items.
Beginning with contributions made after August 17, 2006, no deduction
is allowed for most contributions of clothing and household items unless
the donated property is in good used condition or better.

[Marti]

New Option to Split Refunds Between Bank Accounts

Beginning in 2007, a new refund option is available for filers of Form 1040, Form 1040A,
Form 1040EZ, Form 1040NR, Form 1040NR-EZ, Form 1040-PR, and Form 1040-SS.

Filers of these tax forms for 2006 will be able to elect to have their federal income tax
refund automatically deposited into two or three accounts at a bank or other financial institution (such as a mutual fund, brokerage firm, or credit union).

Individuals electing this split refund option must file Form 8888,
Direct Deposit of Refund to More Than One Account, which will
be available by the end of 2006.

[short]

Originally Posted by Marti

Restrictions on Charitable Contributions

Cash contributions.
All cash contributions made in tax years beginning after August 17, 2006,
to any qualified charity must be supported by a dated bank record or a dated receipt.
The tax year for most individual taxpayers begins on January 1.

Clothing and household items.
Beginning with contributions made after August 17, 2006, no deduction
is allowed for most contributions of clothing and household items unless
the donated property is in good used condition or better.

There goes my deduction for old undies, a drawer full of panty hose with runs in them, and used hankies.

Short

[zdxlc9p6]

There is also a one time only tax credit in 2006 for Federal Excise Tax on long distance phone bills.

http://www.irs.gov/newsroom/article/...161506,00.html

[lawren2]

Home Energy Efficiency Improvement Tax Credits
Consumers who purchase and install specific products, such as energy-efficient windows, insulation, doors, roofs, and heating and cooling equipment in the home can receive a tax credit of up to $500 beginning in January 2006.

Improvements must be installed in or on the taxpayer’s principal residence in the United States. Home improvement tax credits apply for improvements made between January 1, 2006 and December 31, 2007.

http://www.energy.gov/taxbreaks.htm

I like credits better than rebates as they are dollar for dollar.

[Dave M]

Originally Posted by lawren2

I like credits better than rebates as they are dollar for dollar.

Well, not exactly as it turns out, at least with this provision. For doors, windows and insulation, only 10% of the cost is eligible for the credit. Thus, if you spend $1,000 for such items, the credit would be only $100. If a deduction were allowed for the cost, the Federal tax benefit could be as high as about 35%, or $350, depending on the individual tax bracket.

[lawren2]

Originally Posted by Dave M

Well, not exactly as it turns out, at least with this provision. For doors, windows and insulation, only 10% of the cost is eligible for the credit. Thus, if you spend $1,000 for such items, the credit would be only $100. If a deduction were allowed for the cost, the Federal tax benefit could be as high as about 35%, or $350, depending on the individual tax bracket.

Good Point Dave!

This is why we always use a CPA.

Although I'm pretty sure after all we had done this year, that we qualify for the entire amount of the rebate.