New Tax Law Enacted

As we went to press, Congress was wrapping up a new tax law. The law has important provisions for investors.

The key provision is that the 15% tax rate on dividends and long-term capital gains is extended through 2009. Congress still could not make the rates permanent, but at least got them past the next presidential election.

Another provision ensures that no new taxpayers are subject to the alternative minimum tax during 2006.
Small businesses also get another two years to use the higher first-year expensing of up to $100,000 for new assets under section 179. That break is extended through 2009.

Another provision removes the $100,000 income limit on converting regular IRAs into Roth IRAs. The income limit will be removed from 2011 through 2015 and will allow high income taxpayers to convert their IRAs during that period.

A section that restricts family tax planning changes the Kiddie Tax. Currently, income of minor children up to age 14 is taxed at the parents’ top rate after exceeding a certain level. Under the new law, children up to age 18 will have their investment income taxed at their parents’ top rate.

Congressional leaders also are preparing a second tax law that probably will extend the other provisions that expired at the end of 2005 and might also expand charitable contribution deductions. There is no timetable estimated for that law.