MADISON—A number of minor changes to federal income tax laws for 2006 target education and energy-efficiency, and a late-acting Congress extended three deductions that were set to expire after 2005, according to the Wisconsin Taxpayers Alliance (WISTAX). New rules for filers of both 2006 state and federal returns may affect parents, students, educators, low-income filers, and those over age 50 planning for retirement. Explanations of these changes and "plain-English" instructions for filing federal and state tax returns are available in Taxes 2007, WISTAX’s pocket tax guide.

State changes include: an increase in the per student deduction for tuition expenses; a reduction in the alternative minimum tax exemption; and an exception for income received from the Wisconsin Aerospace Authority. Among the federal changes are: credits for energy-saving home improvements and the purchase of energy-efficient vehicles; a cap on the Hope (education) credit; an increase in individual retirement account (IRA) contribution limits; and an increase in mileage rates.

In addition, the federal college tuition, educator, and sales tax deductions, which were scheduled to expire after 2005, were reinstated by Congress in late December.

Along with detailed explanations of the changes, and easy-to-understand instructions for filing federal and state individual income tax returns for 2006, Taxes 2007 has information on other federal, state, and local taxes. Celebrating its 75th year, WISTAX is a nonprofit, nonpartisan organization dedicated to public-policy research and citizen education.

Changes in Wisconsin’s state income tax for tax year 2006 include:

• The maximum deduction for tuition expenses is increased to $4,536 per student (up from $4,244 in 2005).

• Income received from Wisconsin Aerospace Authority bonds is not subject to Wisconsin Income Tax.

• Exemption levels for the Alternative Minimum Tax are reduced to $33,750 if single (formerly $40,250 in 2005), $45,000 if married filing a joint return (formerly $58,000 for 2005), and $22,500 if married filing separately (formerly $29,000 in 2005).

Federal Income Tax Changes

Among the changes affecting federal taxes for the 2006 tax year are:

· The Hope credit (education) is capped at 100% of the first $1,100 of qualified expenses and 50% of the next $1,100, for a maximum credit of $1,650.

· Credits are now available for qualifying energy-saving improvements paid in 2006 (i.e. exterior doors, electric heat pumps, solar panels, and property that converts fuel into electricity).

· A maximum $3,400 credit (depending on the fuel efficiency of the vehicle) for the first 60,000 qualified vehicles sold per auto manufacturer.

· Those 50 years old before the end of 2006 may increase their IRA contribution to $5,000 (up from $4,500 in 2005).

· The rate for business use of a vehicle in 2006 is 44.5¢ per mile. The rate for medical reasons or for moving expenses is 18¢ per mile. The charitable giving rate is 14¢.

 

Three deductions scheduled to expire after 2005 were extended for 2006:

· qualified college tuition and fees;

· itemized deductions in order to take educator expenses; and

· deduction of state and local taxes on federal income.

 

Taxes 2007 contains detailed instructions for Wisconsin’s homestead credit program and the farmland

preservation program. Specific information is given on other taxes, including rate and collection information for

the estate, gift, excise, sales and property taxes. Other topics, such as adoption expenses, armed forces member

credit, working family credit, and certain retirement benefits are covered.

The printing of Taxes 2007 was underwritten by a grant from Heartland Funds, America’s Value Investor. o