Tax Saving Tips for 2006

1. Tax Saving Tips for 2006 Advice from CPAs

2. Recent Tax Law Changes • Retirement Plans • “Kiddie Tax” • Charitable Giving

3. Pension Protection Act of 2006 Retirement Provisions • Makes permanent higher IRA contribution limits • Continued “catch up” IRA contributions • Saver’s credit becomes permanent

4. Charitable contributions directly from IRA Documentation required for monetary donations Donated items must be in “good” condition Charitable Giving Provisions

5. 529 Plan Benefits Made Permanent • Tax-free withdrawals from 529 Plans are permanent • Provision was set to expire in 2010

6. Tax Increase Prevention and Reconciliation Act of 2005 New “Kiddie Tax” Rules • “Kiddie Tax” now in effect until age 18 • Makes income shifting to children less advantageous

7. Convert traditional IRAs to Roth IRAs in 2010 Qualified retirement plans to Roth IRAs in 2010 Tax liability can be spread over two years IRA Conversions

8. Tax Breaks for Energy Efficiency • A credit of up to $3,400 for the purchase of hybrid or alternative fuel vehicle • Energy efficient home improvements may earn $500 credit • Purchase of solar water heaters may garner a credit of up to $2,000

9. Option to deduct sales tax instead of state and local taxes Higher education tuition deduction Out-of-pocket classroom expense deduction Be sure to consult www.irs.gov for more information Extended Tax Breaks

10. Married filing jointly Married filing separately Single Head of Household Qualifying widow(er) Filing Basics Filing Status

11. 2006 Tax Rates • 10% • 15% • 25% • 28% • 33% • 35%

12. Standard Deduction Filing Standard Status Deduction Single $ 5,150 Married filing jointly $10,300 Married filing separately $ 5,150 Head of Household $ 7,550 Qualifying widow(er) $10,300

13. Standard Deduction • Taxpayers 65 and older and/or blind get an • additional standard deduction • Married - $1,000 • Single or Head of Household - $1,250

14. Itemizing Deductions • An alternative to the standard deduction • Use when these deductions exceed • standard deduction • Phase-out rules apply • -- Single/joint/head of household -- $150,500 • -- Married filing separately -- $75,250

15. Personal Exemption Filing Status Phase-out Phase-out starts ends Joint return $225,750 $348,250 Head of Household $188,150 $310,650 Single $150,500 $273,000 Married filing $112,875 $174,125 separately

16. Timing Strategies • Control tax bill by – • Deferring income, such as bonuses • Accelerating deductions, such as • qualified charitable contributions • Bunching deductions that are based on • a percentage of AGI

17. Tax Strategies for Life • Family • Education • Home • Investments • Retirement

18. Family Strategies • Child Credit • Adoption Credit • Dependent Care Credit • Earned Income Credit • Shifting Income

19. Child Credit • Child must be under 17 at year end • Child must be claimed as a dependent • $1,000 credit per child • Reduces tax bill dollar-for-dollar • Phase-out for higher income families

20. Adoption Credit • Credit of up to $10,960 per eligible child • Exemption for first $10,960 • reimbursed by employer • Parents adopting special needs • child get full credit, regardless of actual • expenses

21. Dependent Care Credit • Child must be under 13 and a dependent • Tax credit from 20% to 35% • of qualifying expenses • Use up to $3,000 of expenses • ($6,000 for two or more dependents) • to calculate credit • Not restricted to children

22. Earned Income Credit Family Size Maximum Credit Two or more $4,536 children One child $2,747

23. Consider gifts to children – up to $12,000 without being subject to gift tax Hire your children First $5,150 earned by each child is tax free Not subject to kiddie tax Shifting Income

24. Education Strategies Tax Credits • Hope Credit worth up to $1,650 per student, per year • Applies to first two years of college only • Phase-out applies • Single -- $45,000 -- $55,000 • Joint -- $90,000 -- $110,000

25. Tax Credits • Lifetime LearningCredit of up to • $2,000 per year • Applies to undergraduate, graduate • and professional courses • Phase-out applies

26. Student Loan Deduction • Deduct up to $2,500 • No need to itemize • No limit on repayment period length • $50,000 to $65,000 – phase-out range • for single filers • $105,000 to $135,000 – phase-out range • for married filing jointly

27. Deduct up to $4,000 Phase-out limits apply Single: $65,000 -$80,000 Married: $130,000 - $160,000 No need to itemize Visit www.irs.gov for more information Higher Education Tuition Deduction

28. Homeowner Strategies Deductions • Mortgage interest on first and second homes • Up to $100,000 in home equity loan • or line of credit interest • Points paid on mortgage or refinancing • Real estate property taxes

29. Selling Your Home • Exclude up to $250,000 in capital gains • from sale of home; $500,000 for joint filers • Must own and use home as principal residence • for two out of five years • Eligible only once every two years • Reduced exclusion available

30. Investment Strategies Dividends • Top dividend tax rate of 15% • Rate is 5% for taxpayers in 10% and • 15% brackets • Check ex-dividend date • Does not apply to interest payments

31. Capital Gains Tax • Maximum tax rate on long-term gains is 15% • 5% for taxpayers in 10% and 15% brackets • Asset must be held more than one year • Does not apply to collectibles

32. Offset Capital Gains with Losses • Capital losses offset capital gains • $3,000 ($1,500 for married, filing separately) in net capital losses can be deducted against ordinary income • Beware of wash sale rule

33. Retirement Strategies Employer-Sponsored Plans • Contributions help reduce tax bill • Take advantage of employer matches • $15,000 is 2006 maximum contribution • $5,000 additional contribution for age 50 • and older • New for 2006 – “Roth 401(k)”

34. IRAs • $4,000 is maximum 2006 contribution • $1,000 additional catch-up contribution • for age 50 or older • Phase-out applies • Open by April 16, 2007

35. Business Strategies Structure • C Corporation • S Corporation • Partnership • Limited Liability Company • Sole proprietor

36. Expensing Deduction • Deduct up to 100% of the cost of up to • $108,000 in property • Applies to new or used property • Equipment must be put into service by • December 31, 2006 • Now applies to software • Phase-out rules apply

37. Additional Business Strategies • Deduct 100% of health insurance costs • if self-employed • Defer income and accelerate deductions • Write off bad debt • Make the most of business-related • deductions – travel, auto, meals and • entertainment and interest expenses

38. Year-End Tips Charitable Deductions • Donate appreciated property and avoid capital gains tax • Donate clothing, household goods, furniture in good condition and deduct fair market value • Volunteer your time and deduct qualified travel and related expenses

39. Flexible Spending Accounts • Reduce taxable income • Use up remaining 2006 balances • Over-the-counter drugs are now allowable

40. Avoid AMT • AMT triggers: • Higher than average dependency exemptions • Large deductions for state and local • income taxes and real estate taxes • High miscellaneous itemized • deductions and medical expenses • Incentive stock options

41. Planning for Success • Focus on tax savings year-round • Consider year-end opportunities • Get help if you need it