Wednesday, April 05, 2006

Tax Planning - Key Changes for 2006

It just dawned on me today that my recent bonus and annual raise might have pushed me into the next tax bracket. I know that it's a graduated tax, so only the last portion of my income would be taxed at the higher rate, but still....

Anyway, I checked the 2006 Tax Rate tables. And whew! I'm still in the same tax bracket. Thank God for inflation adjustments. Although, now that I think about it, I guess that just means that my salary isn't keeping ahead of inflation. Sigh.

Here's a summary of key changes for 2006, from the website:

- The value of each personal and dependency exemption, available to most taxpayers, will be $3,300, up $100 from 2005.

- 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. Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.

- 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% bracket from the 25% bracket will be $61,300, up from $59,400 in 2005.

- The annual gift tax exemption will be $12,000, up from $11,000 in 2005. Revenue Procedure 2005-70, containing a complete rundown of inflation adjustments, is posted on the IRS Web site and will appear in Internal Revenue Bulletin 2005-47, dated Nov. 21, 2005.

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