In May Congress enacted the Tax Increase Prevention and Reconciliation Act. There are a few provisions in this new law that will be of interest to church treasurers. The Act:
- Extends reduced capital gains and dividend tax rates through 2010. Capital gains and dividend income will be taxed at a maximum rate of 15 percent through 2010. For taxpayers in the 10 and 15 percent income tax brackets, the tax rate will be 5 percent through 2007 and zero in 2008 through 2010.
- Extends through 2009 the enhanced “section 179 deduction” of up to $100,000 for purchases of depreciable business assets.
- Requires that a taxpayer make a down payment of 20 percent of any lump sum offer-in-compromise with any application for an offer. For periodic payment offers, taxpayers are required to comply with their own payment schedule while their offer is being considered. The Act also provides that an offer is deemed accepted if the IRS does not make a decision with respect to the offer within two years from the date that the offer was submitted.
- Increases the age of minors subject to the tax on unearned income (i.e., passive income such as interest) from 14 to 18.
- Allows more taxpayers to convert to Roth IRAs by removing the modified adjusted gross income limitations on rollovers from an IRA to a Roth IRA beginning in 2010. And, taxpayers can elect to pay tax on amounts converted in 2010 in equal installments in 2011 and 2012.
- Reforms the rules applicable to U.S. citizens working abroad by (1) accelerating indexing of the $80,000 foreign earned income exclusion cap; (2) tying the employer-provided housing exclusion to the foreign earned exclusion cap and applying an objective standard in determining the amount of reasonable housing expenses; and (3) applying a “stacking rule” to ensure that these citizens are subject to the same U.S. tax rates as individuals living and working in the U.S.
This article first appeared in Church Treasurer Alert, October 2006.