Tax ARTICLE - Highlights of the Energy Policy Act of 2005 for Individuals

President George W. Bush signed H.R. 4297, the Tax Increase Prevention and Reconciliation Act of 2005, into law. The new Act will generally help taxpayers, but some will be hurt. Here's a summarized description from the AICPA of some of the provisions signed by President Bush on May 17, 2006:

The AMT exemption level is increased to $62,550 for joint filers and $42,500 for single filers for 2006, and the current provision that allows most non-refundable personal tax credits to be claimed against AMT has been made permanent. These changes should help keep the AMT from spreading to more taxpayers.

Teenagers will pay more tax on unearned income this year, with the age when kiddie tax no longer applies moving up from 14 to 18. This takes away much of the tax benefits of (1) funding traditional Uniform Gifts to Minors Act savings accounts; and (2) parents gifting income-producing investments to children. These investment strategies may shift to capital appreciation assets or savings bonds that could be held until the child reaches age 18.

Offers in compromise will be substantially less appealing because a payment of 20 percent of the proposed lump-sum offer is now required at the time of application.

Rollovers from traditional to Roth IRAs will be available to higher income individuals beginning in 2010. Taxpayers who might find such a conversion attractive include those who are relatively young and expect substantial appreciation before retirement and also those who expect that they will not need funds early in retirement (because Roth IRAs do not require distributions to begin no later than 70-1/2). Taxpayers who expect to make the conversion should save to pay the taxes that will be due on the conversion, although they may take advantage of the option of paying the taxes due over two years. Assuming that Congress won't change the provision, taxpayers might consider making non-deductible IRA contributions now and converting traditional 401(k)s into rollover IRAs to increase amounts eligible for conversion.

The 15-percent tax rate on capital gains and dividends and section 179 expensing were extended through 2010, allowing more certainty for tax planning in these areas.

The foreign earned income exclusion is indexed, but the bill places severe limits on excluding housing costs which will hurt higher-income overseas workers.

An additional tax bill is expected to be introduced to deal with some expiring provisions, including (1) deductions for sales taxes in lieu of state and local income taxes; and (2) business tax credits, including the research credit and the work opportunity credit.

For more information, see the text of the Tax Increase Prevention and Reconciliation Act of 2005 , its conference report , and the Joint Committee on Taxation's Report . For additional links, check the AICPA Tax Center.

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For more information, see the text of the Tax Increase Prevention and Reconciliation Act of 2005 , its conference report , and the Joint Committee on Taxation's Report . For additional links, check the AICPA Tax Center.

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