2007 important tax changes
Whether you are preparing your tax by yourself or using a qualified practitioner, there are some questions that inevitably arise year after year. Just when you think you understand, the rules can change again. Make sure that you have the right information, knowledge, and forms you need to file so there are no unpleasant surprises on April 16th.
Major Changes in Taxes this Year:
Alternative Minimum Tax relief: The 2006 individual alternative minimum tax exemption amount is increased to $ 42,500 from $ 42,250 for single tax payers and $62,550 from $58,000 for married couples filing jointly.
Lower Capital Gains Taxes:
The maximum long term capital gains rate was reduced to 15%, down from 20%. This applies to sales of qualifying assets (i.e. securities) after May 5, 2003 through 2010.Tax payers in the 10% and 15% brackets will have their capital gains rate lowered to 5% for sales after May 5, 2003 through 2007 and to 0% in 2008-10.
Lower Dividend Taxes:
Dividends received by an individual shareholder from domestic and certain foreign corporations generally will be taxed at the same rates that apply to capital gains. This lower rate applies to trusts and estates but not to corporations. Tax payers in the top four tax brackets would pay a minimum of 15% on qualified dividend income for tax years 2003 through 2008.Tax payers in the 10% and 15% brackets would pay 5% tax on qualified dividend income earned for tax years 2003 through 2007 and 0% in 2008-2010.
| Eligible for lower dividend rates |
| Equities,Traditional Preferred Stocks, and Stock Funds |
| ADRs / Foreign Stocks are treated the same as American equities if there is a US tax treaty with the foreign country or if the shares trade on a US exchange |
| Income from blended funds will be prorated based on the percentage of the distribution that is from qualified equities |
| Ineligible for lower dividend rates:- |
| Holding period requirement--If the shareholder does not hold the share of the stock for atleast 60 days during the 121 day period beginning 60 days before the ex-dividend date, dividends are not eligible for the reduced rates |
| REITs, Master Limited Partnerships and REIT preferreds are tax advantaged at corporate level and are therefore subject to the ordinary income tax rates. |
| Bond funds, bond income with a blended mutual fund, Trust Preferreds and $25 par bonds do not receive the lower dividend rate because the income is considered interest. |
| If the shareholder maintains a margin loan and elects to include qualified dividends in investment income to determine deductibility of margin expense, their dividends will not qualify for lower rate. |
| Tax rates: |
| 2003-2010 |
2011 |
| 10% |
No 10% bracket |
| 15% |
15% |
| 25% |
28% |
| 28% |
31% |
| 33% |
36% |
| 35% |
39.6% |
Expanded 10% Bracket:
In 2003, the lowest income tax bracket (10% rate) was expanded from $ 6,000 to $ 7,000 for single filers and from $ 12,000 to $ 14,000 for joint filers. Adjusted for inflation, the 2005 brackets are $ 7,550 for those who are single and $15,110 for those who are married and filing jointly.
Business Owners Benefits:
Bonus Depreciation Businesses will be able to write-off an additional 50% of the cost basis of assets purchased after May 5 and before January 1, 2005.The rate was previously 30%.The bonus depreciation rates have been extended for certain properties placed in service before January 1,2006
Section 179 Expensing:
The maximum amount that businesses will be able to expense under Internal Revenue Code section 179 has been increased to $100,000 for property placed in service tax year 2003. Adjusted for inflation, the maximum expensing amount is $105000 for 2005 and $108000 for 2006. In 2010, the Section 179 deduction is reduced to $25,000
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