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The Jobs and Growth Tax Relief Reconciliation Act of 2003 offered several benefits for both individuals and businesses, following some personal income tax rate reductions that were originally scheduled by the 2001 Tax Act.

Unfortunately, political compromise placed sunset provisions on many parts of those acts. Congress may surprise us by extending some tax breaks that are due to expire.

This article will try to give some highlights of changes for 2006. But because tax law changes every year, it is important for every business owner to work with a financial planner and/or a certified accountant to advise him or her on the most successful tax planning strategy.

This article will cover some of the highlights of the current tax law, but the most beneficial tax planning strategy for anyone will largely depend on his or her individual circumstances.

2006: deductions increase

Luckily, in 2006, we all get a cost of living increase in the amount of money we keep due to the automatic 3 percent increase in the income levels for the five tax brackets. This means that more of your income will be taxed at the lower brackets than in 2005, and you get to keep more of your earned income.

The amount you can deduct for each exemption has increased from $3,200 in 2005 to $3,300 in 2006.

High income earners, however, will end up paying more. You lose all or part of your exemptions if your adjusted gross income is above a certain amount. The amount at which the exemption phase-out begins depends on your filing status. For 2006, the phase-out begins at:

• $112,875 for married persons filing separately,
• $150,500 for single individuals,
• $188,150 for heads of household, and
• $225,750 for married persons filing jointly or qualifying widow(er)s.

The standard deduction for taxpayers who do not itemize deductions on Schedule A of Form 1040 is, in most cases, higher for 2006 than it was for 2005. The amount depends on your filing status, whether you are 65 or older or blind, and whether an exemption can be claimed for you by another taxpayer.

Gift exemption rises

The gift exemption amount has increased from $11,000 to $12,000. This means you can give someone up to $12,000 and not be taxed.