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Plan Now to Take Advantage of Expiring Tax Breaks

by Andrew D. Schwartz, CPA

Few can argue that the U.S. income tax code is easy to navigate.  Trying to take advantage of the current set of rules to minimize your tax burden is tough enough.  What makes tax planning even more challenging these days is the fact that most of the recently enacted tax breaks are scheduled to "sunset" at some point between now and December 31, 2010. 

Let's take a look at some of the current tax savings opportunities with a limited shelf life, starting with those scheduled to expire at the end of 2007.

  • Energy Efficient Expenditures:  Last year's Tax Act provides incentives for people who make energy efficient improvements to their homes or commercial buildings.  Plus, manufacturers of energy efficient appliances get a tax credit of between $50 and $200 for each unit produced, so make sure they pass the tax savings along to you with each qualified purchase.  And if you purchase a newly constructed energy efficient home, or have your home substantially rehabbed, during 2006 or 2007, be aware that the contractor is eligible for a $2,000 tax credit from the IRS.  Most of these energy efficient tax breaks end on December 31, 2007.

  • Increased Section 179 Deduction:  Through the end of 2007, you can elect to write-off the first $108,000 (in 2006, up from $105,000 in 2005) of equipment purchased each year, instead of depreciating the cost of that equipment over its useful life of 5 or 7 years.  Starting in 2008, the Section 179 deduction will once again be limited to just $25,000 per year.  If purchasing a practice or adding equipment to your existing practice is in your plans, doing so before December 31, 2007 will allow for a much larger upfront tax deduction. (The 2006 Tax Act extended the increased Section 179 limits through 2009.)

Here are a few tax breaks expiring in 2008:

  • Reduced Tax Rate on Capital Gains:  Currently, the maximum tax rate on long-term capital gains (assets held for more than one year before being sold) is 15 percent.  Effective January 1, 2009, the capital gains tax rate is scheduled to jump by one-third to 20 percent.  If you plan to sell any of your investments at some point this decade, consider selling appreciated assets on or before December 31, 2008 to lock in the lower tax rate. (The recent Tax Act extended the reduced long-term capital gains tax rate through 2010.)

  • Zero Percent Capital Gains Tax Rate:  Believe it or not, the 2003 Tax Act provides for a zero percent capital gains tax rate during 2008 only for people in the lowest tax bracket.  Consider gifting appreciated assets to your children or grandchildren who will be 14 or older that year, and have them sell those investments during 2008.  Provided the child realizes capital gains of about $30k, no tax will be owed on that gain (assuming the child has no other income).  Just be careful how this strategy might impact that child's college financial aid package. (The recent Tax Act extended the zero percent long-term capital gains tax rate through 2010. The Tax Act also raised the age at which children are taxes at their parent's rate to 17 from 14)

Most everything else expires in 2010:

Your biggest tax planning challenge is what to do after 2010.  On December 31, 2010, the 2001 Tax Act is scheduled to sunset, with the bulk of the tax rules returning to the pre-2001 rules.  This means that the marriage penalty, stealth tax, and reduced retirement and education savings limits will return.  How Congress and the President elected in 2008 will deal with the U.S. income tax code as the provisions of the 2001 Tax Act sunset is quite a mystery. 

Plan Ahead

Tax planning one year at a time used to do the trick.  In 2006, with major tax breaks expiring in three out of the next four years, tax planning is now a five year proposition.


Deadline Looms to Consolidate Student Loans at Today's Low Rates

by Our Friends at

Waiting until the last moment can be risky business, no matter your profession. Besides adding stress to the situation, procrastinating can often lead to lost opportunities.  When it comes to your current student loan portfolio, if you're sitting on unconsolidated loans, procrastinating can turn out to be quite costly. 

What happens to those who wait? Every July 1st, rates on variable student loans are adjusted by the government. Effective July 1, 2006, the interest rate hikes are projected to be quite significant, as follows:

  • Stafford loans in grace: 6.7% (up from 4.70%)

  • Stafford loans in repayment: 7.3% (up from 5.30%)

  • PLUS loans: 8.10% (up from 6.10%)

As you can see, the interest rate for each type of loan is expected to jump by two full points.  As a percentage of the current rates, the interest rates on PLUS loans will increase by almost 33% from their current levels, while the interest rates on Stafford loans still in their grace period jump by more than 40%.

Consider Consolidating

If you have federal student loans of any kind in your student loan portfolio, consolidating them now will most likely save you thousands of dollars over the life of your loan. 

Let's look at a quick example. Assuming you owe $100,000 in student loans, you're probably paying approximately $1,075 per month in loan payments. As of July 1, based on the revised interest rates, expect that payment to increase to $1,177 per month.   By consolidating your student loans before July 1st, you lock in today's low rates, protect yourself against future rate increases, and could cut your payment to as low as $560 per month. 

You will also have an easier time managing your student loan portfolio because you will have fewer loans to monitor, and fewer payments to make each month.  Plenty of great information about consolidating is available at

What's The Downside?

Students and graduates who are nearly finished paying off their loans might not benefit from consolidation and could be better served by simply paying off their loans on schedule. Also, by locking in today's interest rates, you won’t be able to re-consolidate if rates decrease in the future. Nonetheless, for the vast majority of students and graduates with student loans, consolidation remains a prudent choice for managing their student loan portfolio.

Don't Delay

Don't forget that consolidation can take up to 90 days to complete. And unlike the April 15th deadline to file your tax returns with the IRS, there are no extensions and no second chances available.

The rates available today will be gone the moment the clock strikes midnight on July 1. If your loan consolidation isn't complete by July 1, you'll miss out on the opportunity to lock in today's low rates.


Consolidate your student loans today by visiting:

or by calling toll-free (877) 328-1565.

Don't delay - apply immediately so that your loans are taken care of well before June 30.



Income Taxes

Saving and Investing




  • Good time to make semi-annual donation of clothing and household items to charitable organizations

  • Listen to Andrew Schwartz CPA on the Money Matter$ Radio Network on Tuesday, May 2 from 9 - 11 am, ET.

  • Before summer kicks in, take a look at your asset allocation of all your retirement and non-retirement accounts, and consider rebalancing your accounts.


2005 & 2006 TAX FACTS

  • For 2005, the standard deduction for a single individual is $5,000 and for a married couple is $10,000. A person will benefit by itemizing once allowable deductions exceed the applicable standard deduction. Itemized deductions include state and local income taxes (or sales taxes), real estate taxes, mortgage interest, charitable contributions, and unreimbursed employee business expenses.
  • For 2005, the personal exemption is $3,200. Individuals will claim a personal deduction for themselves, their spouse, and their dependents. 
  • The maximum earnings subject to social security taxes is $94,200 for 2006, up from $90,000 in 2005.
  • The standard mileage rate is $.485 per business mile as of September 1, 2005 (after being $.405 per mile through August 31, 2005), and will then be $.445 per mile for 2006.
  • The maximum annual contribution into a 401(k) plan or a 403(b) plan is $15,000 for 2006.  And if you'll be 50 or older by December 31, 2006, you can contribute an extra $5,000 into your 401(k) or 403(b) account this year.
  • The maximum annual contribution to your IRA is $4,000 for 2006.  And if you turn 50 by December 31st, you can contribute an extra $1,000 for 2006.  You have until April 15, 2007 to make your 2006 IRA contributions. 


copyright - 2006 - CPANiche, LLC



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