Friday, December 15, 2006

SUMMARY: Tax Law Changes for Individuals

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Increase in Deductible Limit for Long-Term Care Premiums
For 2006, the maximum amount of qualified long-term care premiums you can include as medical expenses has increased. You can include qualified long-term care premiums, up to the amounts shown below, as medical expenses on Schedule A (Form 1040).
Age 40 or under - $280.
Age 41 to 50 - $530.
Age 51 to 60 - $1,060.
Age 61 to 70 - $2,830.
Note. The limit is for each person.
Alternative Minimum Tax
For tax year 2006, the exemption amount for alternative minimum tax (AMT) has been increased as follows:
Single -- $42,500
Married filing jointly or surviving spouse -- $62,550
Head of household -- $42,500
Married filing separately -- $31,275
Investment income amount.
The maximum amount of investment income you can have in 2006 and still get the credit increases to $2,800. [Taxxcpa comment :THE credit means the Earned Income Credit]
Electric and Alternative Motor Vehicles
For 2006, the list of vehicles that are qualified hybrid vehicles for the Alternative Motor Vehicle Credit has been expanded. The tax credit for hybrid vehicles applies for vehicles purchased on or after January 1, 2006, and could be as much as $3,400 for those who purchase the most fuel-efficient vehicles.
See IR-2006-86, dated June 1, 2006, and the news article, Summary of the Credit for Qualified Hybrid Vehicles, for more information.
Tax-Exempt Interest Reporting
Beginning in 2006, state and local governments are required to report interest paid on tax-exempt state and local bonds on Form 1099-INT, Interest Income. This amount must be shown on your tax return and is for information only.
Social Security and Medicare Taxes
For 2006, the employer and employee will continue to pay:
1. 6.2% each for social security tax (old-age, survivors, and disability insurance), and
2. 1.45% each for Medicare tax (hospital insurance).
Wage limits. For social security tax, the maximum amount of 2006 wages subject to the tax has increased from $90,000 to $94,200. For Medicare tax, all covered 2006 wages are subject to the tax.
Hope and Lifetime Learning Credits
Beginning in 2007, the maximum Hope Scholarship Credit is $1,650.
Beginning in 2007, the amount of your Hope or lifetime learning credit begins to phase out if your modified adjusted gross income is over $47,000 ($94,000 if married filing jointly).
Taxxcpa Comment: These are changes to the law. Some expiring credits have been renewed but are not included in the above list.
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