News

New Law Changes Affecting Individuals

Here's a summary of the most widely applicable tax breaks for individuals that have been restored and/or extended, and for
how long:

... The tax deduction for qualified higher education expenses is restored for 2006 and extended through 2007. It allows
individuals to deduct up to $4,000 (depending on their income) of higher education expenses instead of claiming the Hope or
Lifetime Learning tax credits. The deduction is taken “above-the-line” (that is, it is subtracted to arrive at adjusted gross
income), so it may be claimed by all individuals regardless of whether they itemize their deductions.

... The tax break allowing individual taxpayers to elect to take an itemized deduction for state and local general sales taxes
instead of the itemized deduction permitted for state and local income taxes is restored for 2006 and extended through 2007.
You have two options for determining deductible sales tax: (1) actual sales tax paid if receipts are maintained for IRS
verification; or (2) approximate sales tax paid as estimated in tables provided by the IRS plus sales tax on certain additional
items (such as a boat or car) that may be added to the table amount. The IRS said it will be issuing a separate publication
carrying optional sales tax tables for the 2006 tax year; these tables will not be in the Form 1040 instructions.

... The tax break permitting elementary and secondary school teachers and certain other school professionals to deduct up to
$250 of out-of-pocket costs incurred to purchase books, supplies and other classroom equipment is restored for 2006 and
extended through 2007. This deduction is claimed “above the line.”

... New contributions to Archer medical savings accounts (Archer MSAs) may be made through 2007. New contributions may
be made after 2007 only by or for individuals who previously had Archer MSAs, and employees who are employed by a
participating employer. Individuals may make tax-deductible contributions to an Archer MSA to pay for health care expenses.
The distributions are tax-free if used to pay for eligible medical expenses.

The Tax Relief and Health Care Act of 2006 also includes these new tax breaks for individuals:

· For the 2007 tax year only, there's a new itemized deduction for the cost of premiums for mortgage insurance on a
qualified residence. The deduction is phased-out for taxpayers whose adjusted gross income exceeds $100,000.

· The new law includes many changes for health savings accounts (HSAs), including: allowing one-time rollovers from
health flexible spending accounts (FSAs) and health reimbursement arrangements (HRAs) into HSAs (after the enactment
date of the new law and before 2012); repeal of the annual plan deductible limit on HSA contributions (after 2006); expanded
contributions limit for part year coverage (after 2006); and allowing one-time rollovers from IRAs into HSAs (after 2006).

New Law Changes Affecting Businesses

Here's a summary of the most widely applicable business-related tax provisions that have been restored and/or modified and
extended, and for how long:

... The research and development (R&D) credit is restored for 2006 and extended for 2007. In addition, for tax years ending
after 2006, the new law enhances the credit by (1) increasing the rates of the alternative incremental credit and (2) creating a
new alternative simplified credit that does not use gross receipts as a factor (so that newer businesses can access the
credit).

... The work opportunity tax credit (WOTC), which is a credit for wages paid by employers who hire individuals from certain
targeted groups, and the welfare-to-work tax credit, which is a credit for wages paid by employers who hire long-term family
assistance recipients, are extended in their current form for workers hired in 2006 and combined and modified for those
hired after 2006 and before 2008.

... The accelerated writeoff for certain leasehold improvements and restaurant property (depreciation over 15 years instead of
39 years) is restored for 2006 and extended through 2007.

... The bonus 50% first-year depreciation break that was included in the Gulf Opportunity Zone Act of 2005 is modified by
extending the placed-in-service deadline for certain property used in certain highly damaged areas within the Gulf Opportunity
Zone.

Please keep in mind that I've described only the highlights of the most important changes in the new law. Please give us a call
for details on how you are affected by these changes, and whether you are affected by any of the more highly specialized new
law changes not covered in this Client Letter.

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