Tax Law Updates

Below are some changes to the tax laws that might effect you or your business.

Update:  August, 2006 - Revised kiddie tax affects college savings plans.

The TIPRA change of "under age 14" to "under age 18" for the kiddie tax, affects educational funding.  Certain tax-favored educational funding provisions, such as the 529 plan, have become even more attractive as a result of the statutory changes in the kiddie tax.

Update:  August, 2006 - Pension Protection Act

The Pension Protection Act will give permanent tax-exempt status to 529 college savings plans properly used. The favorable tax treatment was scheduled to expire on December 31, 2010 when it would have returned to what it was before 2002. Prior to 2002, 529 plan earnings grew tax-deferred and when the money was withdrawn it was taxed at a child's rate. Keep in mind that the Pension Protection Act did not change the treatment of Coverdell Education Accounts.

Update:  August, 2006 - Charitable Contributions

The Pension Protection Act of 2006 has several income tax provisions included in it.  One of these changes effects charitable contributions and unfortunately the change is unfavorable to the taxpayer.  The biggest change is the requirement, effective for tax years beginning after 8-17-06 to maintain a record of every charitable contribution made by check, cash, debit card, credit card or in any other monetary form.  The statute does provide some flexibility.  The record can either be a check, a bank record (like a copy of debit expenditure) or any written record, including a receipt, letter or other similar item so long as it includes the donee's name, the contribution date and the amount of the contribution.  The bottom line is - no record, no deduction. Thus, the $20 cash put in a collection basket on Sunday will no longer be deductible without some written receipt.

Along the same lines, donating household items and valuable old clothing such as ratty sweat shirts and torn jeans also took a hit.  For contributions made after 8-17-06, a deduction will be allowed only if the items are in "good used condition or better".  What is good used condition?  Of course, the statute doesn't define it, so the taxpayers will be left to their own devices in making that call.  In addition to this new restriction, the IRS now has the authority to deny a deduction for the contribution of clothing and household goods that have minimal value.  While clothing is self-explanatory, household items include furniture, furnishings, electronics, appliances, linens and other similar items.  However, food, paintings, antiques, art, jewelry, gems or collections aren't considered household goods.

These new rules don't apply if the deduction is for a single item that has a value of over $500 and the taxpayer includes a qualified appraisal with the tax return.

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