Tax TipsRoth ConversionsDecember 2006Earlier this year, TIPRA (Tax Increase Prevention and Reconciliation Act) removed the income limit for high earners who want to convert their traditional Individual Retirement Account to a Roth IRA. While elimination of the $100,000 income limit to convert traditional IRAs to Roth IRAs under TIPRA doesn't start until 2010, maximizing that opportunity can begin in 2006 with maximizing contributions in 2006 and each year thereafter to a nondeductible IRA that can then be converted into a Roth in 2010. » Back to Top «
Hybrid VehiclesDecember 2006The tax credit for hybrid vehicles applies to those purchased on or after January 1,2006 and could be as much as $3,400 for those who purchase the most-fuel-efficient vehicles. Starting in 2006, this tax credit replaces the tax deduction of $2000, previously allowed for taxpayers who purchased a new hybrid vehicle before December 31,2005 for the clean-burning fuel deduction. The tax credit requires a different certification. Many currently available hybrid vehicles may qualify for this new tax credit, but the specific amount of the credit varies from model to model of eligible vehicle. If you purchase and take possession of a qualified hybrid motor vehicle in 2006, don't overlook the hybrid tax credit. » Back to Top «
Substantiation for Cash and Household ItemsDecember 2006Cash Donations: For cash donations (donations consisting of cash, checks or other monetary contributions) made in tax years after August 17, 2006, the Pension Protection Act (PPA) made more strict the rules relating to charitable contributions by requiring that taxpayers must keep records of all cash donations no matter what the amount. Individuals must show a receipt from the charity, a canceled check, or credit card statement to prove their donation by indicating the amount of the contribution, the contribution date and the name of the donee. No tax deduction will be allowed if the taxpayer cannot provide the required supporting documentation. Taxpayers need not attach the documentation and mail it with their tax return but will need to keep the required documentation available in the event of an IRS audit. Donations of Clothing and Household Items: For donations of clothing and household items made after August 17, 2006, the Pension Protection Act (PPA) requires that such items must be in at least "good" used condition or better. Unfortunately, the PPA does not define "good condition." I hope that the IRS will explain this term in forthcoming regulations. This requirement does not apply if the taxpayer claims a deduction of more than $500 for a single item of clothing or a household good and the taxpayer includes a qualified appraisal with respect to an item with the tax return on which the deduction is claimed. Household items include furniture, furnishings, electronics, appliances, linens and other similar items but do not include paintings, antiques, other objects of art, jewelry, gems or collections. » Back to Top «
Credit for Qualified Energy Efficiency Improvements and Residential Energy Property ExpendituresDecember 2006A taxpayer is allowed a limited non-refundable credit for the cost of qualified energy efficiency improvements made to an existing home and expenditures for residential energy property. The credit applies to property placed in service after 2005 and before 2008. The amount of the credit that a taxpayer can claim in a taxable year is the sum of (1) 10 percent of the amount paid or incurred by the taxpayer for qualified improvements installed during the year, and (2) the amount of the residential energy property expenditures paid or incurred by the taxpayer during the year. For purposes of the credit, the amount of residential property expenditures is limited to:
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Income Limitations on Roth IRA Conversions Eliminated in 2010May 2006Currently, individuals with adjusted gross income (AGI) below certain levels may make contributions to a Roth IRA (up to the maximum IRA contribution limit). A taxpayer with AGI of $100,000 or less may convert all or a portion of a traditional IRA to a Roth IRA. The amount converted is treated as a distribution from the traditional IRA for income tax purposes, except that the 10-percent additional tax on early withdrawals does not apply. The Bill eliminates the income limits on conversions of traditional IRAs to Roth IRAs for years beginning after 2009. Thus, taxpayers may make such conversions without regard to their AGI. For conversions occuring in 2010, unless a taxpayer elects otherwise, the amount includible in gross income as a result of the conversion is included ratably in 2011 and 2012. That is, unless a taxpayer elects otherwise, none of the amount includible in gross income as a result of a conversion occuring in 2010 is included in income in 2010, and half of the income resulting from the conversion in includible in gross income in 2011 and half in 2012. However, income inclusion is accelerated if converted amounts are distributed before 2012. In that case, the amount included in income in the year of distribution is increased by the amount distribued, and the amount included in income in 2012 (or 2011 and 2012 in the case of a distribuion of 2010) is the lesser of: (1) half of the amount includible in income as a result of the conversion; and (2) the remaining portion of such amount not already included in income. » Back to Top «
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