On May 17, 2006, President Bush signed into law the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA). Some of the provisions for individuals and small businesses are summarized below.
Capital gain and dividend rates: The TIPRA extends the reduced rates on capital gains and qualified dividend income through 2010.
Increased individual AMT exemption amounts: The alternative minimum tax (AMT) exemption increased for 2006 to $62,550 for married couples filing jointly and surviving spouses, and to $42,500 for unmarried individuals.
AMT relief for personal tax credits: Certain nonrefundable credits (including dependent care, elderly and disabled, Hope Scholarship and Lifetime Learning, and D.C. homebuyer) will be allowed to the full extent of an individual's regular tax and AMT for tax years beginning in 2006.
Increased age for kiddie tax: After 2005, children are subject to the kiddie tax provisions if they have not reached age 18 (up from 14) before the end of the tax year.
Elimination of income limits on Roth IRA conversions: For tax years beginning after 2009, taxpayers may make conversions of traditional IRAs to Roth IRAs without regard to their adjusted gross incomes. For conversions occurring in 2010 (unless the taxpayer elects otherwise), the amount includible in gross income as a result of the conversion is included ratably in 2011 and 2012; income inclusion is accelerated if converted amounts are distributed before 2012.
Sec. 179 expensing: The TIPRA extends through the end of 2009 the $100,000 expense amount, the phase-out limit (as adjusted for inflation) and the other Sec. 179 provisions that otherwise would have expired at the end of 2007.
Capital gain treatment for self-created musical works: At the taxpayer's election, the sale or exchange of musical compositions or copyrights in musical works created by the taxpayer's personal efforts may be treated as the sale or exchange of a capital asset, effective for sales or exchanges before 2011 in tax years after the TIPRA's enactment date.
Amortization of song rights: For any tax year after 2005 and before 2011, music publishers may amortize the advances they make to songwriters over five years. This amortization would be an alternative to the income-forecast method of accounting for these advances.
Partial payments with submissions of OICs: Taxpayers must make partial payments to the I1KS while their offers-in-compromise (OICs) are being considered. For lump-sum offers, they must make a downpayment of 20% of the amount of the offer with any application; for periodic payment offers, taxpayers must comply with their own proposed payment schedule while the offer is being considered. At the same time, the user fee requirement is eliminated. Submitted offers that do not meet these requirements are unprocessable and may result in immediate enforcement. In addition, an offer is deemed accepted if the IRS does not make a decision on the offer within two years from the date it was submitted. This provision is effective for OICs submitted on or after 60 days after May 16, 2006.
Withholding on government payments: For certain nonwage payments made after 2010, withholding will be required. This provision applies to payments to any person providing property or services made by the U.S., and to every state and its political subdivisions and instrumentalities (including multistate agencies). The withholding requirement applies
regardless of whether the government entity making the payment is the recipient of the property or services; some state subdivisions with annual expenditures for property or services below a specified dollar amount are exempt from this withholding requirement.
The rate of withholding is 3%, regardless of whether the payments are for property or services. In addition, there are information reporting requirements on payments subject to such withholding.
The provision does not apply to any payments made through Federal, state or local public assistance or public welfare programs under which eligibility is determined on a needs or income basis (e.g., food vouchers or medical assistance to low-income individuals). In addition, the provision does not apply to payments of wages or any other payment to which mandatory or voluntary withholding applies under current law (e.g., unemployment benefits). The proposal does not exclude payments potentially subject to backup withholding under Sec. 3406; however, if payments are actually being withheld under backup withholding, the provision does not apply. The provision also does not apply to certain specified payments, including payments of interest or payments for real property.
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|Title Annotation:||tax law|
|Author:||Laffie, Lesli S.|
|Publication:||The Tax Adviser|
|Date:||Jul 1, 2006|
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