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January 22, 2007

Keeping up-to-date with changing tax laws and new tax provisions.

By Submitted

Anyone who has ever prepared a tax return knows that the tax laws are always changing.  Just keeping up with the changes can be a full-time job, and it seems that new laws are being enacted more frequently than ever.  For example, in the last two years, the federal tax laws have been significantly altered by the Energy Tax Act of 2005, the Katrina Emergency Tax Relief Act of 2005, the Gulf Opportunity Zone Act of 2005, the Tax Increase Prevention and Reconciliation Act of 2005, the Pension Protection Act of 2006, and the Tax Relief and Health Care Act of 2006.  Various sections contained in the Acts will require interpretation, leading to the issuance of even more rulings and regulations by the Internal Revenue Service and the Massachusetts Department of Revenue.

Despite their complexity, the Acts contain many provisions that are of potential benefit to individual and business taxpayers.  Taxpayers should therefore become familiar enough with the new laws to discuss the opportunities that they provide with their tax advisors.

Individual taxpayers should be aware that the new tax laws support and expand the funding opportunities for Health Savings Accounts.  Health Savings Accounts are expected to become important components in the planning for an individual's health care costs, as they promote tax-efficient savings for that purpose. 

Other provisions that can be important to individual taxpayers include: 

  • The deduction for donations of property and cash to charity are subject to more stringent documentation requirements
  • There is a one-year window until the end of 2007 to take advantage of the increased deduction limits for qualified conservation contributions
  • The new tax laws contain incentives for purchasing hybrid and alternative motor vehicles
  • The funding and distribution rules for retirement accounts and IRAs have been altered to encourage savings for retirement

Business taxpayers should be aware that the Acts contain important provisions regarding the maintenance and operation of company retirement plans.  Employers must provide expanded opportunities for the plan's participants to invest their contributions.  This is an area of increasing complexity for companies that provide such plans, and it is vital for the administrator of the company's plan to stay informed on the latest compliance requirements. 

Other provisions that can be important to business taxpayers include:

  • The requirements for estimated tax payments have been changed
  • The "domestic production deduction" rules have been liberalized
  • The research credit has been extended through 2007

The Acts also include many provisions that are of limited application for most taxpayers, particularly those who live and work in areas outside of those affected by Hurricane Katrina.  Taken as whole, the provisions add more complexity to an already challenging tax system, but also provide savvy taxpayers with helpful planning opportunities.

 
 

About the author

 Mr. Guarino is an associate with the law firm of Fletcher, Tilton & Whipple whose practice concentrates on taxation and estate planning. In particular, he assists individual clients with selecting the appropriate estate plans for their family and financial circumstances. He also counsels individuals and businesses on a wide variety of tax matters. 

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