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| Winter 2006 In This Issue:
2006 Inflation Adjustmenti bet s Widen Tax Brackets, Change Tax Benefits Personal exemptions and standard deductions will rise, tax brackets will widen and individuals will be able to make larger tax-free gifts in 2006, thanks to inflation adjustments recently announced by the Internal Revenue Service.By law, a variety of tax provisions must be revised each year to keep pace with inflation. As a result, more than three dozen tax benefits, affecting virtually every situation, are being modified for 2006. We have outlined a few of the changes effecting inflation adjustments in this newsletter. If you have any questions regarding these changes and their effects on your tax preparation, please contact our office. Key changes effecting 2006 returns, filed by most
taxpayers in early 2007, include:
Standard mileage rates for 2006 decrease. The Internal Revenue Service announced the standard mileage rates for 2006 have decreased. Measured from current post-August 2005 levels, they represent the largest cents-per-mile drop of standard mileage rates (4 cents-per-mile) in their history. Yet, measured from pre-September 2005 levels, they also represent their largest cents-per-mile increase (4 cents-per-mile for business travel and 3 cents in connection with medical or moving expenses). The new amounts per mile are as follows:
The standard mileage rate for Katrina relief efforts is 70% of the business mileage rate or 31.1¢ per mile for 2006. The 2005 rates per mile before September 1, 2005 were 40.5¢ for business 15¢ for medical or moving, and 14¢ for charitable. The 2005 rates per mile after August 31, 2005 were 48.5¢ for business, 22¢ for medical or moving, and 14¢ for charitable. Beginning with 2005 returns due in 2006, individuals will be able to use a single IRS form (Form 4868) to get an automatic six-month extension of time to file. This will replace the existing two-step process under which an automatic extension was only allowed for four months, generally until August 15. If additional time was needed, a taxpayer had to explain why, using a second extension request form (Form 2688), which extended the filing deadline to October 15. Extension procedures will also be streamlined for business taxpayers, thus eliminating three existing forms. Under the existing procedures, only corporations can request an automatic six month tax-filing extension. The new regulations will also make this option available to most noncorporate business taxpayers, including partnerships and trusts.Accordingly, starting January 1, all eligible business taxpayers will use Form 7004 to request an automatic six-month extension of time to file. In the past, eligible noncorporate business taxpayers had to request an initial three-month extension and, if more time was needed, then request another three months. Please remember these are extensions of time to file, not to pay.
SOCIAL SECURITY WAGE BASE/ BENEFITS INCREASE The Social Security wage base is rising to $94,200 in 2006, a $4,200 jump and $900 more than government actuaries predicted. That's an extra $260 tax bill for high-paid workers and their employers. Tax rates remain 6.2% for FICA and 1.45% for Medicare. Self-employeds will pay 15.3% on the first $94,200 of earnings and 2.9% above that.Social Security benefit checks will be 4.1% larger next year and earnings limits for beneficiaries rise. Recipients between ages 62 and 65 and eight months can earn up to $12,480 without a reduction in benefits. For each $2 earned over that, $1 of benefits is lost. Those who will be age 65 and eight months in 2006 can earn $33,240 until they reach that age. For each $3 earned over that, benefits drop $1. There's no cap for anyone over age 65 and eight months.
January 17, 2006 4th quarter estimated tax payments (Form 1040-ES) due for 2005 tax year. January 31, 2006Deadline for employers to mail out W-2s and for 1099 Statements to be mailed to recipients. February 28, 2006Deadline to file W-2s and 1099 Statements with the Social Security Administration. March 1, 2006Deadline for qualifying farmers who have a balance due on their taxes to file their individual tax return and pay the balance due without any late payment penalties. March 15, 2006Deadline for corporate tax returns (Forms 1120, 1120A and 1120S), or to request an automatic 6-month extension of time to file (Form 7004). March 31, 2006Deadline to file W-2 and 1099 Statements with the Social Security Administration if filing electronically. April 17, 2006Deadline to file individual tax returns (Form 1040, 1040A or 1040EZ) or to request an automatic 6 month extension of time to file (Form 4868). 1st quarter estimated tax payments (Form 1040-ES) due for 2006 tax year.Deadline to file estate or trust income tax returns (Form 1041) or to request an automatic 6-month extension of time to file (Form 7004). Deadline to file partnership tax returns (Form 1065) or to request an automatic 6-month extension of time to file (Form 7004).
Your 2005 Tax Organizers have been mailed! The ORW organizer is designed to remind you of items you reported last year and to prompt you to include new items of income or deductions. It will also ask you to answer questions that will help us determine the proper reporting of your tax information and inform you of law changes that may effect your return. If we prepared your 2004 tax return, you should have already received an organizer in the mail. It has your 2004 amounts and information filled in. If we did not prepare your 2004 return and you would like a blank organizer, please call Theresa or Sandra and they will be happy to mail you a blank form. (The organizers are provided for your convenience and are not required for completion of your income tax return. If you have other methods to gather your tax information, we will be happy to use those records rather than the organizer.)
Extended Office Hours During tax season, the offices of Oliver, Rainey & Wojtek have extended work hours from 8am to 6pm Monday through Friday and from 8am to 12pm on Saturdays, effective January 21, 2006. We understand the importance of using convenient meeting times to help meet the demands of your schedules. We are available for appointments at our office or at your place of business.
Roth 401(k) Retirement Plan coming in 2006 The new Roth 401(k) plan combines the features of a traditional Roth IRA account with those of regular 401(k) account.Key facts about the new Roth 401k: Taxes: Roth 401(k) accounts are funded with after-tax dollars. Thus, withdrawals can be made tax free after age 59½, if the account has been held for at least 5 years. Also, there are no minimum distribution requirements when you reach age 70.Contribution Limits: $15,000 for employees under age 50 and $20,000 for employees over the age of 50. Accounts: Roth 401(k) and regular 401(k) contributions must be held in separate accounts. Employees have a choice on how to divide contributions between these two types of accounts. Matching Contributions. Employer matching contributions are pre-tax and will continue to go into a regular 40l(k) account. Eligibility: All employees who qualify for a traditional 401(k) account are also eligible for a Roth 401(k) account. There are no income limitations. Roll-over: At retirement or employment termination Roth 401(k) funds can be rolled into a Roth IRA account. Please note: The Roth 401(k) provisions are part of the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001. As such, this provision is subject to the Sunset Provision which means that it will expire after December 31, 2010 unless Congress votes to extend the time or make the law permanent. If you need help understanding Roth 401(k) accounts or any other items discussed in the newsletter, please do not hesitate to call us.
Oliver, Rainey & Wojtek recently announced the following promotions: Natalie Tankersley, CPA, from Manager to Senior Manager; Michelle Perkey, CPA, from Supervisor to Manager, Donna Smith from Bookkeeper to Senior Bookkeeper and Cecily Green, to Bookkeeping Supervisor. Cecily was also certified as a QuickBooks Certified Advisor. Congratulations ladies! Congratulations to Penelope Tigue who recently successfully completed all four parts of her CPA examination. Following closely behind her are Tammy Stout and Jerry Ramirez, with 2 parts successfully completed.We welcome Jill Nagle, CPA and Lacie Hawkins to Oliver, Rainey & Wojtek. Jill comes to us from KPMG in Midland, Texas. She graduated from Texas Tech University in 2000 and received her CPA certification in 2001. Lacie is currently attending Angelo State University and will be graduating in May, 2006. She is currently employed by Oliver, Rainey & Wojtek as a runner/office assistant, but will soon be moving into an intern position. Congratulations to Richey Oliver, who was recently elected Chairman of the San Angelo Health Foundation Board.
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