Important Changes in the Tax Law

By William C. Hussey II

Effective January 1, 2006

A number of changes in the federal income, estate and gift tax law took effect on January 1, 2006 that may be of
significance in your personal financial and tax planning. Some of the more widely applicable changes include:

• The income tax brackets for all taxpayers have been adjusted for inflation so that, generally, the highest tax bracket of 35% is not reached until taxable income exceeds $336,550 for unmarried individuals, married couples filing jointly, and heads of household, or $168,275 for married individuals filing separately. Each of the lower income tax rate (including the 10%, 15%, 25%, 28% and 33%) brackets has also been adjusted for inflation. Similarly, each of the income tax rate brackets for trusts and estates has been adjusted upward.
• The standard deduction has been increased to $10,300 for married couples filing jointly, $7,550 for head of household filers, and $5,150 for unmarried individuals and married individuals filing separately.
• The annual exclusion for gifts from each donor that are not included in determining taxable gifts will be $12,000 per donee (and $120,000 for gifts to a non-U.S. citizen spouse).
• The exemption equivalent amount (i.e., the dollar value of assets that can pass free of tax) for Estate and Generation Skipping Transfer Tax purposes will increase to $2,000,000 per individual.

IRS Circular 230 Notice: To ensure compliance with certain regulations promulgated by the U.S. Internal Revenue Service, we inform you that any federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding tax-related penalties under the U.S. Internal Revenue Code, or (2) promoting, marketing or recommending to another party any tax-related matters addressed herein, unless expressly stated otherwise.