Ah, Blessed Relief

June 9, 2006 - How's this for a bit of government alphabet soup…TIPRA? That's the law passed by the House and Senate and signed by President Bush on May 17th…..the Tax Increase Prevention and Reconciliation Act of 2005. They certainly come up with some very creative titles, don't they? This latest amendment to the Internal Revenue Code, Public Law No: 109-222, contains no less than 471 Sections.

There are several provisions in this legislation that could affect you and me. Listed below are those that may have the greatest impact depending upon your personal and/or business/professional affiliation.

Amends the Internal Revenue Code to extend: (1) the increased expensing allowance (currently, $100,000) for depreciable business property until 2010; (2) the tax credit for retirement savings contributions (saver's credit) through 2009; (3) the tax deduction for higher education expenses through 2009; (4) the election to deduct state and local general sales taxes in lieu of state and local income taxes until 2008; (5) the allowance of nonrefundable personal tax credits against the alternative minimum tax through 2007; (6) the tax deduction for charitable contributions of computer technology and equipment by corporations for educational purposes through 2007; (7) the tax deduction for certain expenses of elementary and secondary school teachers through 2007; (8) the expensing allowance for environmental remediation expenditures through 2007 (includes petroleum products as hazardous substances for purposes of such allowance); (9) accelerated depreciation allowances for qualified leasehold and restaurant improvements until 2008; and (10) the tax credit for qualified electric vehicles through 2007 (eliminates the 75% phase-out of such tax credit for vehicles placed in service after December 31, 2005). Source: GovTrack.US

In addition, the following are particularly meaningful in reviewing your financial plans. The 15% maximum rate on qualified dividend and long-term capital gain income has been extended for another two years through 2010. The result is that all of the tax cuts from the 2001 Tax Act that the President steered through Congress during his first year in office will sunset after 2010. The Alternative Minimum Tax (AMT) exemption amounts have been increased for 2006 to $62,550 for joint filers and $42,500 for single filers. These amounts were slated to drop to $45,000 and $33,750, respectively. Certain non-refundable credits, including the dependent care credit, are allowed for AMT purposes for 2006.

The $100,000 maximum Sec. 179 expense deduction has been extended for two additional years through December 31, 2009.

The "kiddie tax" imposed on the unearned income of dependent children will apply to children under age 18 beginning with 2006. Previously, the kiddie tax only applied to children under age 14.

Beginning in 2010, the $100,000 AGI threshold precluding conversion of traditional IRAs to Roth IRAs is eliminated. The income resulting from any conversions in 2010 can be deferred equally to 2011 and 2012.

There are some provisions of the Act that may be important to your planning. I suggest you speak with your tax advisor to determine exactly how these new regulations might be applicable to your situation and then, all kidding aside, you may actually have reason to breathe a sigh of relief.