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The recently passed 2006 Tax
Relief and Health Care Act, a wide-ranging
measure that preserves a variety of popular
tax breaks for families and businesses,
extends energy provisions encouraging
alternative and renewable energy sources,
and includes trade, oil drilling and
Medicare provisions, and contains an array
of tax provisions with immediate and
long-term impact on businesses. Here is a
look at the key tax provisions that directly
affect business taxpayers.
Extension and modification
of certain tax relief provisions.
The new law extends through 2007,
and in certain circumstances modifies,
provisions which under prior law either
expired at the end of 2005 or would have
expired at the end of 2006. These include:
Research tax credit.
The research and development (R&D)
credit, which expired at the end of 2005
under prior law, is extended to qualified
amounts paid or incurred during 2006 and
2007. In addition, for tax years ending
after 2006, the new law enhances the credit
by (i) increasing the rates of the
alternative incremental credit and (ii)
creating a new alternative simplified credit
that does not use gross receipts as a factor
(so that newer businesses can access the
credit).
Work opportunity and
welfare-to-work tax credits.
The work opportunity tax credit (WOTC),
which is a credit for wages paid by
employers who hire individuals from certain
targeted groups, and the welfare-to-work tax
credit (WWTC), which is a credit for wages
paid by employers who hire long-term family
assistance recipients, are extended in their
current form for 2006 and combined in 2007.
Modifications of the combined credit include
expanded eligibility for the WOTC (raised
age ceiling for food stamp recipients from
25 to 40), revised eligibility requirements
for ex-felons, and extension of the
paperwork filing deadline from 21 days to 28
days.
Qualified zone academy bonds
(QZABs).
QZABs are tax credit bonds issued by
States or localities principally for school
renovation. Bond holders may claim a tax
credit against federal income taxes in lieu
of receiving interest. The new law extends
QZABs for two years and authorizes states to
issue up to $400 million of QZABs for 2006
and 2007. The new law also adds special
rules relating to expenditures and arbitrage
and new information reporting rules.
Brownfield remediation
expensing.
Expensing of costs associated with
cleaning up hazardous
("Brownfield") sites is extended
through 2007, and the definition of an
eligible contaminated site is expanded to
include sites contaminated by petroleum
products.
Leasehold and restaurant
improvement recovery.
The accelerated write off for certain
leasehold improvements and restaurant
property (depreciation over 15 years instead
of 39 years) is extended through 2007.
Enhanced deduction for
corporate contributions of computer
equipment for educational purposes.
The rule that encourages businesses to
contribute computer technology and equipment
to schools by allowing an enhanced deduction
for such contributions is extended through
2007.
Extension of certain
expiring energy provisions and other energy
provisions.
The new law provides an extension
through 2008 of a number of energy
provisions that would have expired at the
end of 2007 under prior law. It also
contains a package of other energy
provisions. The changes include:
Energy credit for certain
business purchases.
The 30% business tax credit for the
purchase of fuel cell power plants and solar
equipment is extended through Dec. 31, 2008.
Credit to holders of clean
renewable energy bonds.
The clean renewable energy bond (CREB)
program is extended through Dec. 31, 2008
and an additional $400 million of CREB
bonding authority is provided.
Credit for new energy
efficient homes.
The tax credit for builders of new
energy efficient homes is extended for one
year through Dec. 31, 2008. The credit
applies to manufactured homes meeting a 30%
energy reduction standard and other homes
meeting a 50% standard.
Deduction for energy
efficient commercial buildings.
The deduction for energy efficient
commercial buildings meeting a 50% energy
reduction standard is extended for one year,
through Dec. 31, 2008.
Please keep in mind that we
have described only the highlights of the
most important changes in the new law. Give
us a call at your earliest convenience for
more details on how you may be affected by
this important tax legislation.
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