More year end tax tips : Rooftop Views

Rooftop Views

More year end tax tips

Our good friends at Wells Fargo are always sending us helpful info. This year end piece on changes for the 2006 tax year is very timely.

Broader income tax brackets—While basic tax rates remain unchanged, all income tax brackets have increased for 2006. For example, in 2005 if you were single and made up to $7,300, you were in the 10% bracket. In 2006, that bracket widens to $7,550. For 2005, the 15% bracket for singles extended up to $29,700. This year it reaches to $30,650. The effect is lower taxes for those with taxable income between $29,700 and $30,650 in 2006. The highest tax rate remains unchanged at 35%.

Retirement plan contribution increases—The contribution limit for a 401(k) has been increased to $15,000, up by $1,000 from 2005. If you’re age 50 or older, you’re allowed to contribute an additional $5,000 in catch-up deferred savings. The cap on SIMPLE IRA contributions remains at $10,000, but the catch-up amount for those 50 or older has been increased to $2,500 for 2006, $500 more than last year. While the basic IRA contribution maximum remains unchanged at $4,000, the catch-up amount for people 50 and older increases to $1,000 in 2006, double that in 2005. These contributions are considered adjustments to income.

Standard deduction increase—If you take the standard deduction on your federal tax form, as opposed to itemizing, you can take a higher deduction this year. For 2006, the standard deduction goes up to $10,300 for those filing jointly, $5,150 for singles and $7,550 for head of household. In 2005, it was $10,000 for joint filers, $5,000 for singles and $7,300 for head of household.

Increased personal exemption—The personal exemption in 2006 increases to $3,300, a $100 up tick, allowing you to reduce your taxes a bit more this year for each family member you support.

Estate tax exemption boost—The exemption for estate taxes is $2 million this year, up from $1.5 million in 2005. The top estate-tax rate also was reduced from 47% to 46%.