Tax Increase Prevention – Summer 2006

Hello from Sycamore,

Tax Increase Prevention and Reconciliation Act of 2005

We all received some good news on the tax front recently when president Bush signed the Tax Increase Prevention and Reconciliation Act of 2005 into law. This tax law basically extends the current tax advantages given to stock dividends and realized capital gains for two additional years through December 31st 2010.

As you are likely already aware, stock dividends and capital gains are taxed at a reduced rate from ordinary income. If you are in the 10% or 15% marginal tax bracket, your dividends and capital gains are currently taxed at 5%. This is a substantial savings (66% less) from the tax rate on your ordinary income. If you are in the 25% marginal bracket or higher your dividends and capital gains are taxed at 15% a savings of 10% to 20% depending on your bracket. The new law extends these lower rates for dividends and realized capital gains through 12/31/2010.

Additionally, if your dividends and capital gains would ordinarily be taxed in the 15% bracket (the 5% tax rate as described above), they will be tax free for the years 2008, 2009 and 2010.

These reduced tax rates do not apply to fixed investments such as Corporate Bonds,CD’s or Savings Accounts.

As interest rates rise and start to compete with stock returns, this tax advantage should continue to give equity investors a significant tax advantage. This could help support stock prices relative to other investment options.

If you have been wanting to convert your regular IRA to a ROTH but your taxable income is too high, there is some (deferred) good news for you in this new law. Starting in 2010 the $100,000 modified AGI limitation no longer applies. Additionally, income created by the Roth conversion can be spread over tax years 2011 and 2012.

Another change in the new law is an increase in the exemption amounts for AMT (Alternative Minimum Tax). In 2006 (only in 2006) the exemption amounts are $62,550 for Married Filing Jointly,$42,500 for Single filers and Head of Household and $31,275 for Married Filing Separate.

Finally, more than a few of you will be interested to know that the “Kiddie Tax Law” now applies to children under the age of 18. The previous law applied only to children under 14 years old.

If you have any questions about the new tax law or it’s effect on you, feel free to drop us an e-mail or give us a call. Kokomo 765-455-1554 Anderson 765-643-9333.

Thanks for your business and trust,

Sycamore Financial Group


Past performance does not assure future results. Investors cannot invest directly in the stock market indexes such as the S&P 500. Invest return and principal value of an investment will fluctuate. Investor value, when sold, may be worth more or less than their original cost. The material in this presentation is for illustrative purposes and does not reflect any particular investment.