The tax codes change on an annual basis. While some of these changes help taxpayers save money, others cost taxpayers a lot of money. Not all these changes will impact you at a personal level. In any case, it pays to know the various changes made to tax codes. You can use this knowledge not only to benefit from tax deductions, but also file your tax returns accurately.
According to a modification made in 2006, there was a deduction in the tax rates from which everybody could equally benefit. The income tax rates for the four top income brackets were lowered to 25 percent, 28 percent, 33 percent, and 35 percent while the rates of 10 percent and 15 percent rates remained the same.
Another modification of 2006 eliminated the phase outs of personal tax exemptions. Prior to 2006, your personal tax exemptions were reduced whenever your income shot up. The 2006 modification to the tax laws reduced these phase outs or reductions to personal exemptions by one third. In 2008, it was reduced by two third, and by 2010, it is believed to disappear completely.
In 2006, a new tax deduction was introduced. The nontaxable amount of money that you could contribute to your IRA increased. The change impacted those who contributed regularly to a retirement plan such as 403b or 401k plans, including those who contributed to their own IRAs.
At the beginning of 2006, the maximum amount that an average employee could contribute to a 403b or a 401k plan increased to $15,000. Besides, the amount that those above fifty could contribute was also raised.
The income phase out for those who were married increased by $5000. The income phase out is believed to disappear completely in the following years. This change will enable married people to put by some money for their retired life irrespective of their current incomes.
Previously, married people had to pay more taxes on the money they contributed toward their retirement plans when compared to singles. The 2006 modification brought about equality in the tax law. The change applies only to married couples who jointly file income tax returns, not people who file on their own.
If you want to know more about income tax deductions for a given year, you should consult your tax advisor. They know all about the changes in tax law that each year brings because they keep updating their knowledge. You might have to spend some money to use the services of an expert every year. But keep the long-term benefits of such a practise in view. A professional will be able to spot several deductions that you will miss.