HALLIDAY & COMPANY is interested in helping you achieve your individual and business financial goals.  Understanding basic financial and tax concepts will help prevent costly mistakes and allow you to operate as efficiently as possible.  For this reason, we publish  “ACCOUNT-ABILITY” as a resource of helpful information, which we hope, will benefit you personally and/or as a business owner.

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This newsletter offers factual and up-to-date information on the subjects discussed, but should not be regarded as a complete analysis of these subjects.  No party assumes liability for any loss or damage resulting from reliance or use of this material.

NEW TAX LAW WILL IMPACT

TAXPAYERS

 June 2006 Continued

On May 17, 2006, President Bush signed the Tax Increase Prevention and Reconciliation Act of 2005, thereby making May 17 the date of enactment and effective date for many provisions in the Act.

 

The kiddie tax has been strengthed now.  Until the year that a child reaches age 18, any unearned income over $1,700 will be taxed at the parents’ marginal tax rate, not the child.  Prior to the new law, the rule applied only to kids who were under age 14.

 

Interest paid on tax-exempt bonds will now be reported to the IRS starting in 2006.  Although the interest is not taxable, it can be a factor in computing the alternative minimum tax (AMT) and the taxation of Social Security benefits.

 

Taxpayers will now have the opportunity for unlimited conversions to Roth IRA’s.  The $100,000-of-AGI cap on switching an IRA to a Roth IRA is repealed after 2009.  On conversions in 2010, taxpayers can spread the tax due over two years.  Half of the tax will be due in 2011, and the remaining half will be payable in 2012.  After 2009 there will be no income limitations on making contributions to a Roth IRA.

 

Exemptions for the AMT have been increased for 2006, effectively lowering the number of taxpayers affected by AMT.  Additionally, AMT relief has been continued for taxpayers who use dependent care and tuition tax credits.  These credits will continue to offset the AMT through tax year 2006.

 

Capital gain tax rates have been extended.  The maximum rate on capital gains and dividends stays at 15% through tax year 2010.  The 0% tax rate for dividends and gains of low-