Tax Law Changes

Tax law changes for 2005 and 2006 are now official and will affect your business operations for this 2006 fiscal year. Here are the highlights of the recent tax law changes.

Prior to the 2006 tax law changes, here are the key points of major business tax regulations:

• Balance shown on Form 2290, Heavy Highway Use Tax Return for the period July 1, 2005 through June 30, 2006 must be paid in full.
• Enactment of The American Jobs Creation Act of 2004 eliminates the option to pay the taxes due in installments.
• If you have a Canadian or Mexican vehicle registered in your name, the reduced tax rates no longer apply
• Reduced rates shown on the Tax Computation worksheet apply only to logging vehicles.

Form 2290, Heavy Highway Use Tax Return and its instructions are available at IRS Forms

Increased for Gain from Empowerment Zone Business Stock Non corporation taxpayers can exclude up to a 60% gain on the sale or trade of qualified small business stock held more than 5 years. Your gain must meet the following requirements to qualify:

• You sell or trade stock in a corporation that qualifies as an empowerment zone business during most of the time you held the stock, and remains in effect if the corporation faile to qualify on the date you acquired the stock.
• You acquired the stock after December 21, 2000
• Taxable gain is 28%

See Capital Gain Tax Rates and Section 1202 Exclusions, chapter 4 Publication 550 for more information about empowerment zone businesses is available in Publication 954 Tax Incentives for Distressed Communities

The self-employment tax rate on net earnings remains the same:

• 15.3% rate: 12.4% for social security and 2.9% for Medicare
• Maximum amount subject to social security taxes has increased to $90,000
• All net earnings of $400 or greater are subject to Medicare tax rate

For 2005, the employer and employee must pay:

• 6.2% each for social security
• 1.45% for Medicare tax
• Wage limits for social security tax increases to $94,200
• All covered 2006 wages are subject to Medicare taxes

See Circular E Publication 15: Employer’s Tax Guide for more information.

• Increases to 40.5 cents a mile for business miles driven of your car, van, pickup, or panel truck during January 1, 2005 to August 31, 2005
• Increases to 48.5 cents a miles for business miles driven during September 1, 2005, through December 31, 2005.

• Section 179 limit deduction increases to $108,000 for qualified section 179 property, reduced by amounts exceeding $430,000 when the 179 property was placed in service during the tax year.

See Publication 946 How To Depreciate Property for more information.

• Self-employment tax rate on net earnings remains the same for 2006.
• Maximum net earnings subject to social security taxes beginning in 2006 increases to $94,200.
• All covered 2006 wages are subject to Medicare taxes

Employer and employee will continue to each pay:

• 6.2% for social security tax
• 1.45% each for Medicare tax
• Maximum net earnings subject to social security taxes beginning in 2006 increases to $94,200.
• All covered 2006 wages are subject to Medicare taxes

See Circular E Publication 15: Employer’s Tax Guide for more information.

• Standard mileage deduction for business operations of your car, van, pickup, or panel truck is 44.5 cents a mile for all business miles driven.

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