In with the new and out with the old - What do you need to plan for?
Happy New Year! May this year bring you a renewed sense of wellbeing and wealth.
Here are some pointers that will have helped for the last of 2005 and some new thoughts for 2006. Check out http://www.AcctBay.com servicing the Beautiful Okanogan Valley.
News for 2006
PRNewswire via NewsEdge Corporation - Hartford Urges Business Owners to Make Survival Planning a Key New Year's Resolution. According to Hartford - natural disasters account for only about 5% of the calamities that typically affect businesses. Approximately 68% of calamities are human error, 25% by technological failures and the remaining 2% by intentional malice. Check out the "Survivor Beyond Disaster" webinar at http://www.sb.thehartford.com/
One man businesses risk health
Evening Mail via NewsEdge Corporation :
SELF-EMPLOYED workers such as plumbers, dancers and vets are risking their health because they cannot afford to take time off when they are ill, a survey suggested today.
Nearly three-quarters of self-employed people claimed they had no choice but to carry on working when sick, a poll by private medical insurer PruHealth found.
The research, involving 300 self-employed workers, found that just one in 10 said they would always take time off when they were unwell.
Because they are the only person to run the business, self-employed people said this was the major motivator for working through sickness.
But PruHealth said almost half - around 1.6 million people - did not have private medical insurance, income protection or critical illness insurance.
New for 2005
Qualified Production Activities Deduction
The Section 199, qualified production activities deduction, went into effect in 2005 and will benefit any business that produces property in the U.S. It provides a 3 percent deduction for the lesser of: (1) the entity's qualified production activities income for the year, or (2) the entity's taxable income (for an individual, adjusted gross income is used to calculate the limitation), not to exceed 50% of W-2 wages paid by the entity.
Six-Month Automatic Extensions Available for 2005 Tax Returns
The IRS has streamlined the process for extending the due date of individual, small business, and partnership returns. Automatic six-month extensions are now available.
IRA Deduction Expanded
The IRA deduction increased from $3,000 in 2004 to $4,000 in 2005 plus an additional $500 for clients age 50 or older at the end of 2005.
Elective Salary Deferrals Increased
The amount a client can defer under all elective salary deferral plans increased in 2005 to $14,000 ($10,000 in a SIMPLE plan; $17,000 for a Section 403(b) plan if the taxpayer qualifies under a special rule). The catch-up contribution limit for clients 50 or older increased to $4,000 ($2,000 for SIMPLE plans) in addition to the basic contribution. The maximum 401(k) contribution by a client over 50 is $18,000.
Vehicle Donations
The rules for vehicle donations changed in 2005, possibly making such donations less attractive. Under the old rules, clients could deduct the "fair market value" of cars donated to charity. The new rules provide that if the charity sells the car, the donor's deduction is limited to the proceeds received by the charity. If the charity does not sell the vehicle, but uses it in furthering the charity's exempt purpose, the client may be entitled to deduct the vehicle's fair market value.
Standard Mileage Rates
The 2005 standard mileage rate for business use of a vehicle is 40.5 cents for January through August. Beginning in September, that rate increases to 48.5 cents. The 2005 rate for using a vehicle to get medical care or to move is 15 cents a mile for January through August, and 22 cents a mile thereafter. The charitable mileage rate was 22 cents, but changed to 70 percent of the standard rate beginning in September. Effective January 1, 2006, the standard rate will be 44.5 cents per mile.
Dependents Can't Claim Exemptions for Dependents
Starting in 2005, an individual that can be claimed as a dependent on someone else's return cannot claim any exemptions for dependents.
Katrina Emergency Tax Relief Act of 2005
The Katrina Emergency Tax Relief Act of 2005 (the Act) provides a variety of tax incentives for those affected by the hurricane and those helping those affected.
Charitable donations
The Act removed limitations on some charitable contributions, allowing generous donors to substantially reduce their 2005 taxable income. Contributions need not be related to Hurricane Katrina to qualify.
The Act allows your client to elect to have the 50 percent income limitation rule not apply to cash contributions starting on August 28, 2005, through December 31, 2005, to charitable organizations (other than private foundations). Since this provision expires at the end of 2005, clients should consider accelerating any planned giving into 2005, if possible.
For corporations, the 10 percent of income limitation is waived for cash contributions to charitable relief efforts related to Hurricane Katrina made before 2006. In addition, these contributions are not considered in applying the charitable donation carryover rules to other contributions.
The Act increased the standard mileage rate for individuals providing Hurricane Katrina relief to 29 cents per mile from August 25 through 31, 2005, and 34 cents per mile for the rest of 2005.
Emergency Access to Retirement Plans
The Act includes special provisions relating to "qualified Hurricane Katrina distributions."
For persons affected by Hurricane Katrina, the Act waives the 10 percent tax on early distributions from IRAs and pensions after August 25, 2005 and before January 1, 2007. Eligible individuals may withdraw a maximum of $100,000 from their IRAs and pensions without incurring the 10 percent penalty tax. Amounts withdrawn will not be taxed at all if they are repaid to the retirement account within 3 years.
A distribution from a 401(k) plan, 403(b) annuity, or IRA to buy a home in the Hurricane Katrina disaster area can be re-contributed to the plan, annuity, or IRA if it was to be used to purchase a residence in the affected area but the residence is not purchased or constructed because of Hurricane Katrina.
Employer and employee tax relief
The Act extends the work opportunity tax credit to "Hurricane Katrina employees" (individuals who, before Hurricane Katrina, resided in portions of the disaster area that are now eligible for federal assistance) beyond the cut-off date of December 31, 2005. Employers located in such an area may claim the credit for Hurricane Katrina employees hired over the next two years. Employers located outside the Hurricane Katrina disaster area may claim the credit for Hurricane Katrina employees hired through the end of 2005.
Small employers (those with an average of less than 200 employees) located in a disaster area that is eligible for assistance may claim a tax credit through the end of the 2005 calendar year if they retain an eligible employee on their payroll. The tax credit equals 40 percent of the first $6,000 of wages paid to the employee between August 28, 2005, and January 1, 2006.
Deduction for housing assistance
A $500 exemption deduction is provided for individuals who provide rent-free housing in their principal residences for at least 60 days to dislocated persons. The deduction is $500 per person housed, with a maximum of $2,000, and can be claimed in either 2005 or 2006, but not in both years for same person.
Additional relief provided by the Act includes:
(1) exclusion from income for certain forgiveness of debt;
(2) a full deduction for personal casualty losses (i.e., elimination of the $100 and 10 percent floors); and
(3) increased time to replace property involuntarily converted.
Qualified Leasehold and Restaurant Improvement Depreciation Changes
Qualified leasehold and improvement property and qualified restaurant property placed in 2005 may be depreciated over 15 years. However, such property placed in service after 2005, must be depreciated over 39 years.
Estate Provisions
For decedents dying after 2004, a deduction is allowed to the estate for any death taxes, (any estate, inheritance, legacy, or succession taxes) paid to any state or the District of Columbia, on property included in the gross estate of the decedent. For earlier years, these taxes were usually creditable against the federal estate tax (up to a limit).
Tax season is just around the corner, but the time for year-end and next year tax planning is now!
Here are some pointers that will have helped for the last of 2005 and some new thoughts for 2006. Check out http://www.AcctBay.com servicing the Beautiful Okanogan Valley.
News for 2006
PRNewswire via NewsEdge Corporation - Hartford Urges Business Owners to Make Survival Planning a Key New Year's Resolution. According to Hartford - natural disasters account for only about 5% of the calamities that typically affect businesses. Approximately 68% of calamities are human error, 25% by technological failures and the remaining 2% by intentional malice. Check out the "Survivor Beyond Disaster" webinar at http://www.sb.thehartford.com/
One man businesses risk health
Evening Mail via NewsEdge Corporation :
SELF-EMPLOYED workers such as plumbers, dancers and vets are risking their health because they cannot afford to take time off when they are ill, a survey suggested today.
Nearly three-quarters of self-employed people claimed they had no choice but to carry on working when sick, a poll by private medical insurer PruHealth found.
The research, involving 300 self-employed workers, found that just one in 10 said they would always take time off when they were unwell.
Because they are the only person to run the business, self-employed people said this was the major motivator for working through sickness.
But PruHealth said almost half - around 1.6 million people - did not have private medical insurance, income protection or critical illness insurance.
New for 2005
Qualified Production Activities Deduction
The Section 199, qualified production activities deduction, went into effect in 2005 and will benefit any business that produces property in the U.S. It provides a 3 percent deduction for the lesser of: (1) the entity's qualified production activities income for the year, or (2) the entity's taxable income (for an individual, adjusted gross income is used to calculate the limitation), not to exceed 50% of W-2 wages paid by the entity.
Six-Month Automatic Extensions Available for 2005 Tax Returns
The IRS has streamlined the process for extending the due date of individual, small business, and partnership returns. Automatic six-month extensions are now available.
IRA Deduction Expanded
The IRA deduction increased from $3,000 in 2004 to $4,000 in 2005 plus an additional $500 for clients age 50 or older at the end of 2005.
Elective Salary Deferrals Increased
The amount a client can defer under all elective salary deferral plans increased in 2005 to $14,000 ($10,000 in a SIMPLE plan; $17,000 for a Section 403(b) plan if the taxpayer qualifies under a special rule). The catch-up contribution limit for clients 50 or older increased to $4,000 ($2,000 for SIMPLE plans) in addition to the basic contribution. The maximum 401(k) contribution by a client over 50 is $18,000.
Vehicle Donations
The rules for vehicle donations changed in 2005, possibly making such donations less attractive. Under the old rules, clients could deduct the "fair market value" of cars donated to charity. The new rules provide that if the charity sells the car, the donor's deduction is limited to the proceeds received by the charity. If the charity does not sell the vehicle, but uses it in furthering the charity's exempt purpose, the client may be entitled to deduct the vehicle's fair market value.
Standard Mileage Rates
The 2005 standard mileage rate for business use of a vehicle is 40.5 cents for January through August. Beginning in September, that rate increases to 48.5 cents. The 2005 rate for using a vehicle to get medical care or to move is 15 cents a mile for January through August, and 22 cents a mile thereafter. The charitable mileage rate was 22 cents, but changed to 70 percent of the standard rate beginning in September. Effective January 1, 2006, the standard rate will be 44.5 cents per mile.
Dependents Can't Claim Exemptions for Dependents
Starting in 2005, an individual that can be claimed as a dependent on someone else's return cannot claim any exemptions for dependents.
Katrina Emergency Tax Relief Act of 2005
The Katrina Emergency Tax Relief Act of 2005 (the Act) provides a variety of tax incentives for those affected by the hurricane and those helping those affected.
Charitable donations
The Act removed limitations on some charitable contributions, allowing generous donors to substantially reduce their 2005 taxable income. Contributions need not be related to Hurricane Katrina to qualify.
The Act allows your client to elect to have the 50 percent income limitation rule not apply to cash contributions starting on August 28, 2005, through December 31, 2005, to charitable organizations (other than private foundations). Since this provision expires at the end of 2005, clients should consider accelerating any planned giving into 2005, if possible.
For corporations, the 10 percent of income limitation is waived for cash contributions to charitable relief efforts related to Hurricane Katrina made before 2006. In addition, these contributions are not considered in applying the charitable donation carryover rules to other contributions.
The Act increased the standard mileage rate for individuals providing Hurricane Katrina relief to 29 cents per mile from August 25 through 31, 2005, and 34 cents per mile for the rest of 2005.
Emergency Access to Retirement Plans
The Act includes special provisions relating to "qualified Hurricane Katrina distributions."
For persons affected by Hurricane Katrina, the Act waives the 10 percent tax on early distributions from IRAs and pensions after August 25, 2005 and before January 1, 2007. Eligible individuals may withdraw a maximum of $100,000 from their IRAs and pensions without incurring the 10 percent penalty tax. Amounts withdrawn will not be taxed at all if they are repaid to the retirement account within 3 years.
A distribution from a 401(k) plan, 403(b) annuity, or IRA to buy a home in the Hurricane Katrina disaster area can be re-contributed to the plan, annuity, or IRA if it was to be used to purchase a residence in the affected area but the residence is not purchased or constructed because of Hurricane Katrina.
Employer and employee tax relief
The Act extends the work opportunity tax credit to "Hurricane Katrina employees" (individuals who, before Hurricane Katrina, resided in portions of the disaster area that are now eligible for federal assistance) beyond the cut-off date of December 31, 2005. Employers located in such an area may claim the credit for Hurricane Katrina employees hired over the next two years. Employers located outside the Hurricane Katrina disaster area may claim the credit for Hurricane Katrina employees hired through the end of 2005.
Small employers (those with an average of less than 200 employees) located in a disaster area that is eligible for assistance may claim a tax credit through the end of the 2005 calendar year if they retain an eligible employee on their payroll. The tax credit equals 40 percent of the first $6,000 of wages paid to the employee between August 28, 2005, and January 1, 2006.
Deduction for housing assistance
A $500 exemption deduction is provided for individuals who provide rent-free housing in their principal residences for at least 60 days to dislocated persons. The deduction is $500 per person housed, with a maximum of $2,000, and can be claimed in either 2005 or 2006, but not in both years for same person.
Additional relief provided by the Act includes:
(1) exclusion from income for certain forgiveness of debt;
(2) a full deduction for personal casualty losses (i.e., elimination of the $100 and 10 percent floors); and
(3) increased time to replace property involuntarily converted.
Qualified Leasehold and Restaurant Improvement Depreciation Changes
Qualified leasehold and improvement property and qualified restaurant property placed in 2005 may be depreciated over 15 years. However, such property placed in service after 2005, must be depreciated over 39 years.
Estate Provisions
For decedents dying after 2004, a deduction is allowed to the estate for any death taxes, (any estate, inheritance, legacy, or succession taxes) paid to any state or the District of Columbia, on property included in the gross estate of the decedent. For earlier years, these taxes were usually creditable against the federal estate tax (up to a limit).
Tax season is just around the corner, but the time for year-end and next year tax planning is now!
posted by BizGal at 3:50 PM
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