January 1, 2006 - The 2006 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical, or moving purposes have been released by IRS (IR 2005-138 & Rev. Proc. 2005-78). The standard mileage rates for the use of a car, van, pickup or panel truck are:
- 44.5 cents per mile for business miles driven;
- 18 cents per mile driven for medical or moving purposes; and
- 14 cents per mile driven in service of charitable organizations, other than activities related to Hurricane Katrina relief.
For 2006, Karina-related charitable rates will be 32 cents per mile for deduction purposes, and 44.5 cents per mile for reimbursement purposes.
The new rate for business miles compares to a rate of 40.5 cents per mile for the first eight months of 2005 and 48.5 cents for the last four months of 2005.
The changes are effective for (1) deductible transportation expenses paid or incurred on or after January 1, 2006, and (2) mileage allowances or reimbursements paid to an employee or to a charitable volunteer (a) on or after January 1, 2006, and (b) with respect to transportation expenses paid or incurred by the employee or charitable volunteer on or after January 1, 2006.
2006 Inflation-Adjusted
Figures Out
January 1, 2006 - Rev. Proc. 2005-70 lists the more than three dozen tax benefits including the breaks in the tax rate brackets that are being modified for 2006 because of inflation. Here are some of the changes effective for taxable years beginning in 2006:
- *The value of each personal and dependency exemption, available to most taxpayers, will be $3,300.
- The new standard deduction will be $10,300 for married couples filing a joint return, $5,150 for singles, and $7,550 for heads of household.
- Tax-bracket thresholds will increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15 percent bracket from the 25 percent bracket will be $61,300, up from $59,400 in 2005.
- The amount in Section 1(g)(4)(A)(ii)(I), which is used to reduce the net unearned income reported on the child's return that is subject to the "kiddie tax," is $850.
- The monthly limitation under Section 132(f)(2)(A) (regarding the aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass) is $105. The monthly limitation under Section 132(f)(2)(B) (regarding the fringe benefit exclusion amount for qualified parking) is $205.
- Under Section 179(b)(1) the aggregate cost of any Section 179 property, that a taxpayer may elect to treat as an expense shall not exceed $108,000. Under Section 179(b)(2) the $108,000 limitation shall be reduced (but not below zero) by the amount by which the cost of Section 179 property placed in service during the 2006 taxable year exceeds $430,000.
Ford Escape and Mercury
Mariner Hybrids Qualify
January 1, 2006 - The IRS has certified the model year 2006 Ford Escape Hybrid and the 2006 Mercury Mariner Hybrid vehicles as being eligible for the clean-burning fuel deduction. Taxpayers who are the original owners and who purchase one of these hybrid vehicles new during calendar year 2005 may claim a tax deduction of up to $2,000 on Form 1040.
This one-time deduction must be taken in the year the vehicle is originally used. Individuals don't have to itemize deductions on their tax return to claim this deduction, but can take the deduction as an adjustment to income.
The deduction for the purchase of a hybrid vehicle expires on December 31, 2005. Under Section 1348 of the "Energy Act of 2005," it has been replaced by a tax credit found in Section 1341 of the "Energy Act of 2005."
For other vehicle models certified as eligible for the clean-burning fuel deduction, go to www.irs.gov/newsroom/article/0,,id=104549,00.html.
Higher Gift Tax Exclusions
for 2006
January 1, 2006 - The annual gift tax exclusion for 2006 was bumped up to $12,000 from $11,000 in 2005. It was announced in IR-2005-130 and Rev. Proc. 2005-70 that for 2006, the first $120,000 of gifts to a spouse who is not a U.S. citizen (other than gifts of future interests in property) is not included in the total amount of taxable gifts under Sections 2503 and 2523(i)(2) made during that year.
In addition, for an estate of a decedent dying in 2006, if the executor elects to use the special use valuation method under Section 2032A for qualified real property, then the aggregate decrease in the value of qualified real property resulting from electing to use that section is taken into account for purposes of the estate tax and may not exceed $900,000. Also, for an estate of a decedent dying in calendar year 2006, the dollar amount used to determine the "2-percent portion" as provided in Section 6166 is $1,200,000.
Moreover, the stated dollar amount of the per diem limitation under Section 7702B(d)(4) with respect to periodic payments received under a qualified long-term care insurance contract or periodic payments received under a life insurance contract that are treated as paid by reason of the death of a chronically ill individual, is $250.