Lawrence L. Richards, CPA: Breaking News

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TAX HIGHLIGHTS FOR 2006

New tax legislation during 2006 included The Tax Increase Prevention and Reconciliation Act (TIPRA) of May 17, 2006, The Pension Protection Act of 2006 (PPA) of August 17, 2006, and The Tax Relief and Health Care Act of 2006 of December ¬¬20, 2006.

In September, 2006 I drafted a Special Tax Bulletin for 2006 covering certain provisions of the PPA; notably new rules for charitable donations and pension reforms. If you would like a copy of the Special Tax Bulletin, please contact me, or view it under Breaking News on my website at www.llrcpa.com.

TAX PLANNING FOR THE REST OF 2006

You finally have a good fix on what your taxable income and expenses are shaping up to be for 2006 and for several months into 2007. This allows you to effectively use acceleration or deferral techniques to maximize you overall tax savings between 2006 and 2007. Of course, this requires information gathering and a proactive approach. Some of the more frequently used strategies include:

Smoothing out taxable income between 2006 and 2007 by accelerating and postponing transactions that either produce income or yield deductible expenses;

Matching long and short term capital gains with losses to lower overall capital gains tax and possibly maximize the $3,000 amount of capital losses that can offset other income

Bunching deductible expenses into one or the other year depending upon whether the standard deduction may be taken in one of the years, or whether the adjusted gross income limits for medical (7.5%) or miscellaneous itemized deductions (2%) may be more easily met. Strategies for accelerating expenses into the current year include:

Paying state and local income taxes or real estate taxes before the end of the year;
Paying your January mortgage payment in December;
Making next year’s charitable contribution in the current year.

Maximizing the tax law limits on annual contributions to your retirement plan accounts, since one year’s limits cannot be added to the next year’s when not taken in time

For businesses, taking advantage of the full $108,000 expensing deduction for 2006 and the $112,000 deduction available for 2007, and

If you’re an S corporation shareholder, making certain that your stock basis is high enough to entitle you to any available losses.

INDIVIDUAL TAX CHANGES FOR 2006

Personal exemptions. The law provides for a 5-year phase-in of the repeal of the personal exemption phase-out – meaning in plain English that personal exemptions previously lost to high income taxpayers are being restored. In 2006 (and 2007) 1/3 or $1,100 of each exemption can now be used by the ‘wealthy’.

Credit for energy-efficient improvements to a personal residence by a homeowner. During 2006 and 2007 taxpayers can receive a tax credit for certain energy efficient purchases for the primary residence. The credit is a certain percent of the cost of the purchase subject to a maximum credit for all taxable years of $500 – no more than $200 of the credit can be attributable to expenses for windows. The following expenses are eligible: insulation systems that reduce heat loss/gain, exterior windows including skylights, exterior doors, and certain metal roofs.

In addition, credits for costs relating to residential energy property expenses are: $50 for each main air circulating fan, $150 for each qualified natural gas, propane, or oil furnace or hot water heater, and $300 for ‘energy efficient building property’, which includes electric and geothermal pumps and central air conditioners.

If placed in service in 2006 and 2007, solar, photovoltaic or fuel cell equipment qualifies for a 30% nonrefundable credit. An annual credit limit of $2,000 per category is set for solar hot water and photovoltaic expenditures, and $500 for each half kilowatt of capacity of qualified fuel cell property. (Not available for swimming pools and hot tubs.)

Charitable contributions.
Charitable contributions of IRA proceeds. For 2006 and 2007 only, a taxable required minimum distribution (for persons age 70-1/2 or more) from a traditional or Roth IRA may be excluded (up to $100,000) from income if the distribution is made to a qualified charity by the IRA trustee. The regular charitable substantiation rules apply. A charitable deduction may not be claimed.

Tax tip: Reasons to utilize this provision: You do not need to take the IRA distribution and do not want to pay the tax on it; many AGI related phase outs are reduced; perhaps the gift from the IRA will be a better choice than the gift of appreciated stock – since the IRA produces income to the estate of the account owner, leaving stock rather than the IRA may result in less tax to the beneficiary.

Vehicle donations. The deduction is limited to the actual sales price of the vehicle by charity. Form 1098-C is used by the charity and donor as an acknowledgement. If the vehicle is used by the charity the deduction is based on fair market value from a private party sale pricing guide, not Kelly Blue Book. (For a full explanation, see Tax Highlights for 2004).

Health Savings Accounts (HSA). Conceptually, the HSA is an individual retirement account for medical expenses. Earnings are generally exempt from tax. Favorable above-the-line deductions are available to individuals and self-employed persons. The plan works best for healthy, younger persons or families, who currently do not incur large medical expenses. They will be able to fund an HSA for use in later years when their medical bills will probably be greater and at the same time reduce current year outlay for medical insurance costs. The plan may be attractive to small employers who are looking to control the exponential rise in insurance premiums for employees. Distributions from the HSA are tax-free, provided the distributions relate to qualified medical expenses of the account beneficiary or family members. The rules are complex. You may contact me for further information or find information at www.msabank.com or www.hsainsider.com.

Section 529 Qualified State Tuition Programs. The PPA permanently extends the Section 529 provision that makes qualified distributions used for higher education costs tax free. For more information see www.collegesavings.org and www.savingforcollege.com.

Gift tax annual exclusion increases to $12,000 for 2006 for transfers of present interests in property to any one donee.

Cost Segregation Studies (CSS). A cost segregation study is a valuation process that separates business personal property, and shorter-lived business real property improvements from the 27-1/2 year and 39 year building. The CSS provides deductions sooner. For example, each $100,000 reclassified from 39 year property to 5 year property is approximately a $20,000 net present value savings!

Even if the property was acquired in a prior year, a CSS may, in addition to increase the current and future amount of depreciation, allow you to take catch up deductions in the current year for depreciation not claimed in prior years. No need to file amended returns, worry about the statue of limitations for prior years, or pay for a letter ruling, as this change in method of accounting is free and automatic.

To obtain a CSS requires payment of a fee to a preparer with knowledge of both the construction process and the tax law involving property classifications for depreciation purposes. You may want to look at www.bedfordcap.com, the site of Bedford Capital Consulting, one of the nation’s leading providers of engineering based cost segregation studies. There are tax pros and cons to cost segregation studies that are not easily described in these Tax Highlights. If you believe a CSS may have value, you should contact your tax advisor.

BUSINESS TAX CHANGES FOR 2006

Domestic Production Deduction (Code section 199)
If your business qualifies for the Domestic Production Deduction, this is a HUGE benefit. Be sure to read the rest of my comments on this matter.

Your possible deduction is 3% of the lesser of 1) qualified production activities income, or 2) taxable income. The deduction is limited to 50% of W-2 wages. The percentage increases to 6% for 2007, 2008, and 2009. For years after 2009 the deduction is increased to 9%.

Who qualifies for the deduction? 1) The manufacture, production, growth, or extraction in whole or significant part in the United States of tangible personal property (e.g. clothing, goods, and food), software development, or sound recordings 2) Any ‘qualified film’ produced by the taxpayer 3) U. S. production (but not transmission or distribution) of electricity, natural gas or potable water 4) Construction of substantial renovation of real property in the U.S. including residential and commercial buildings and infrastructure such as roads, power lines, water systems and communications facilities 5) Engineering and Architectural services performed in the U.S. and relating to construction of U.S. real property 6) In general, income from a lease, rental, license, sale, exchange, or other disposition of software developed in the U.S. qualifies for the deduction, regardless of whether the customer purchases the software off the shelf or takes delivery of the software by downloading the software from the Internet. Computer software is not limited to software for computers and includes, for example, video game software. Computer software does not include any data or information base unless it is in the public domain and is incidental to a computer program.

Additional businesses that qualify: Toy manufacturer, wholesale bakery, shopping center builder, kitchen contractor, film producer, optical lab (to the extent it ‘manufactures’ eye glasses), dental lab making crowns and dentures, winery, painting as part of construction, landscaping as part of construction of building, tax software writers.

Wholesale qualifies: Food or beverages prepared at the facility and sold at wholesale are not considered prepared at a retail establishment and the taxable income related to the wholesale transactions is therefore eligible for the deduction. If you have both wholesale and retail sales, the wholesale portion qualifies.

Businesses that don’t qualify: retail toy store, retail bakery, shopping center landlord, appliances sales, ophthalmologist, dentist, liquor store, house painter doing painting/repairs, landscaping for existing building, tax preparers.

There are numerous definitions and limitations and options to calculate costs. The list of qualified business shown above is not a complete list. It is my impression that this deduction is too good to pass up. If you believe your business may qualify, you should contact your tax preparer for an evaluation.

Credit for builder of energy efficient home. An eligible contractor who constructs a qualified new energy efficient home may qualify for a tax credit of up to $2,000. The contractor will need to verify that the home is used by the purchaser as a residence and will probably need some sort of a letter from the home buyer certifying the use.

Deduction for energy-efficient property expenditures by a commercial building owner. A new deduction is available for property placed in services in 2006 and 2007 for the cost of energy-efficient property expenditures for commercial buildings. Expenditures include interior lighting, heating, cooling, ventilation, and hot water, and the ‘building’ envelope. The deduction is a dollar amount per square foot.

To obtain these advantages, a Certification from an engineer-type is required.

There are many ramifications to these Energy Tax Incentives, so be sure to consult with your tax advisor.

Section 179 expensing for business personal property is $108,000 in 2006 ($112,000 in 2007) phasing out for costs in excess of $430,000 ($450,000 in 2007)
Special section 179 rules for automobiles:

Automobiles of 6,000 pounds or less are considered ‘passenger automobiles’, have a limited depreciation deduction and section 179 expensing is not allowed.

Certain trucks and vans (including SUVs and minivans built on a truck chassis) weighing 6,000 pounds or less are subject to depreciation caps slightly higher than for ‘passenger automobiles’ and section 179 expensing is not allowed.

Sports utility vehicles, certain trucks and certain vans with a loaded gross vehicle weight over 6,000 pounds and up to 14,000 pounds are exempt from the depreciation caps. Section 179 expensing is limited to $25,000. The $25,000 limit also applies to exempt trucks with an interior cargo bed length of less than six feet and exempt passenger vans that seat fewer than ten persons behind the driver’s seat.

Rollovers from retirement plans to Roth IRAs
For distributions in 2006 and 2007, you must roll your pension amount to a traditional IRA and then roll the traditional IRA amount to a Roth IRA. Taxable income results from the rollover.

Effective after 12-31-07 the PPA allows distributions from tax-qualified retirement plans, tax-sheltered annuities, and governmental 457 plans to be rolled over directly from such plan to a Roth IRA. Taxable income results from the rollover (except to the extent it represents a return of after-tax contributions), and the 10% early distribution tax does not
apply.

IRA provisions. The 2006 IRA contribution amount is $4,000 and an additional $1,000 catch-up contribution is permitted for those 50 and over, up to the individual’s compensation if neither the individual nor the individual’s spouse is an active participant in an employer-sponsored retirement plan. A homemaker who does not work outside the home may make a similar contribution if the combined compensation of both spouses is a least equal to the contributed amount.

If the individual or spouse is an active participant in an employer-sponsored retirement plan, the deduction limit is phased out based on AGI over certain levels.

Tax tip: Higher income taxpayers not able to contribute to a traditional or Roth IRA because of AGI limits may want to contribute to a nondeductible IRA. Then, in 2010, you will be able to convert that nondeductible IRA into a Roth regardless of your high AGI and there will be little tax at the conversion since you have a basis in the IRA. Only the earnings on the nondeductible IRA will be taxable; in addition, the tax can be spread over the following 2 years, 2011 and 2012. But if the person has other IRAs, there is an ‘ordering rule’ on basis and the results will not be as attractive as for a person who only has a nondeductible IRA.

Is a One Person 401K Plan better than a profit sharing plan?
Even though the Profit Sharing Plan limit has increased to 25%, sole proprietors might consider a single participant 401(k) plan. In order to contribute $44,000 to a Profit Sharing Plan in 2006, a sole proprietor must have $229,500 of net self-employment income However, a self-employed individual only needs $153,150 of net self-employment income in order to contribute $44,000 to a single participant 401(k) plan.

A Solo 401(k) plan is available to businesses whose only employees are the owner and the owner’s spouse. If the taxpayer is 50 or over, he or she can contribute an additional $5,000. Form 5500 is required for a 401(k) plan. (Schwab does not charge a fee for the 5500 preparation I understand.) A plan participant can borrow from the plan; strict rules apply. More information is available from www.401khelpcenter.com.

Leveraged gift to a child with low AGI. A saver’s credit for low income persons is now permanent. If you are over 18 and not a full-time student or claimed as a dependent on another taxpayer’s return, you are eligible. The maximum annual contribution eligible for the credit is $2,000. The credit rate depends on AGI.

Example: Son earns $15,000. His AGI is also $15,000. Father gives son $2,000 to contribute to his Roth IRA. Son makes the Roth IRA contribution and also gets a $1,000 tax credit (50% of the contribution, based on AGI) on his tax return. Father has given son $2,000 for a retirement contribution and also has enabled his son to spend or save $1,000 now.

EXTENDERS

Tax provisions scheduled to expire 12-31-05 were approved by the House and Senate on December 8th and 9th, and subsequently signed into law by President Bush just before Congress adjourned for the year. Provisions extended retroactively to 1-1-06 are:

Deduction for state and local taxes. Mostly benefits residents in states without income tax. Also, loading big-ticket sales tax purchases into 2006 may make sense for those able to take advantage of the optional sales tax deduction. Or, you could defer any state income tax payments into 2007.

Higher education tuition deduction. For 2006 and 2007, a $4,000 or $2,000 (based on AGI) above-the-line education deduction is available to single taxpayers. But only for higher education tuition and qualifying fees. The student claiming the deduction cannot also claim the HOPE of Lifetime Learning credit. Taxpayers may want to estimate AGI for 2006 and if it is within the cut-off for taking the deduction, pay spring tuition in December.

Teacher’s classroom expense deduction. Teachers and other education workers can deduct, above the line, up to $250 of certain out-of-pocket classroom expenses.

Research tax credit is extended to amounts paid or incurred in 2006 and 2007.

Leasehold and restaurant improvements. The new law extends the 15-year recovery period for certain leasehold and restaurant improvement through 2007. In case of a restaurant, more than 50% of the building’s square footage must be devoted to the preparation of and seating for on-premises consumption of, prepared meals and the improvements must be made to a building that has been in service for at least 3 years.

TAX CHANGES FOR 2007

Stricter rules for contributions of clothing and household items effective beginning in 2007. The deduction for these items will be allowed only if they are in good used condition or better. Therefore, used socks and used undergarments, etc. will be denied, as they have minimal monetary value.

Tax tip: Consider taking photos or preparing a more detailed description of the items gifted. No longer acceptable are the pink or yellow receipts from Salvation Army or Goodwill that say “3 boxes and 4 bags”.

Substantiation requirements for contributions modified effective beginning in 2007. Cash contributions regardless of amount cannot be deducted unless you have a receipt or canceled check. In other words, cash contributions to the ‘church collection plate’ will not be allowed unless you have a bank record or written communication from the donee that shows the name of the donee, date of contribution, and amount. Other written records are not sufficient.

Notification requirement for exempt entities not currently required to file an annual information return due to gross receipts under $25,000, must furnish the Secretary annually, in electronic form, various information about the organization. Failure to provide the required notice for three consecutive years will result in revocation of the organization’s exempt status.

Fixed contribution limitations on IRA accounts will be inflation adjusted to $156,000 (formerly $150,000) for married filing jointly and $99,000 (formerly $95,000) for most others.

Inflation adjustment of the Saver’s Credit for lower income taxpayers means higher income levels will qualify.

California minimum wage increases to $7.50 an hour (and to $8.00 1-1-08). This will have an impact on exempt executive, administrative and professional employees whose minimum salary requirements are tied to the minimum wage.

Planning opportunities to owners of rental property. Consider taking advantage of up to $25,000 in passive losses, limiting the number of days that a vacation home is rented, investing in low-income housing or rehabilitating older buildings, renting a dwelling unit to a family member, disposing of unwanted property in a tax-free exchange, and depreciating property at a faster rate and over a shorter recovery time by implementing a cost segregation study.

As always, I am available to discuss any of these matters with you.

Your resource for all of your tax, financial, and business planning matters,

Lawrence L. Richards, C.P.A.
December 2006

The new Pension Protection Act of 2006 (H.R. 4) not only impacts persons who are participants in traditional defined benefit pension plans or multi-employer plans—or who are sponsors of traditional plans or multi-employer plans—it also impacts everyone who is saving for retirement. Highlights of the Act of 2006 are discussed below.

OVERVIEW

The comprehensive pension reform package will cost $73 billion over the next 10 years and makes the most sweeping changes to the pension system in 30 years. It contains provisions that strengthen traditional pension plans, extend over 20 retirement tax-savings benefits, add new rules governing specific charitable donations, impose tighter controls on exempt organizations, and also covers over a dozen other major tax provisions.

The new law also contains a number of provisions that impact charities and charitable donations, technical corrections, and a handful of miscellaneous provisions, including new recordkeeping requirements for cash donations; Federal oversight of charitable organizations; stricter rules for donations of used clothing and household goods; new treatment of donations of fractional interests; special contribution rules for buildings in registered historical districts; and an extension of the rules allowing for Sec. 529 qualified tuition programs.

CHARITABLE DONATIONS

New Rules for Charitable Donations
Americans donate billions of dollars to charitable organizations every year. Many contributions are in cash; others in tangible goods, such as household items and clothing. Because of the huge amounts of money involved, charitable donations have always been ripe for abuse. Congress has known this for a long time, and the new pension reform law cracks down on abusers.

Effective as of the date of enactment of the new law, no deduction will be allowed for any contribution of cash, check or other monetary gift unless you can show a bank record or a written communication from the charity. This means you’ll have to either get a receipt for every cash donation you make or make your donation by check, credit or debit card, so you bank statement will show it. Congress made this change to crack down on taxpayers who inflate their cash contributions.

The new pension reform law also cracks down on donations of broken or malfunctioning household items and poor or soiled clothing. Household items and clothing must be in “good condition” to be deductible. Otherwise, they’re not. There is a limited “antiques” exception for donated single items appraised at more than $500. The IRS is expected to issue guidance about what is “good condition” in time for the 2007 tax filing season, as this change is also effective as of the date of enactment of the new law.

While the new law imposes restrictions on contributions of cash, household goods and clothing, it expands some other deductions. Last year, in response to Hurricane Katrina, Congress enhanced the deduction for donations of food and books. The new law extends this special treatment through December 31, 2007. If you are age 70 ½ or older, you will be able to make a tax free distribution of IRA proceeds up to $100,000 to a charitable organization through December 31, 2007. The new law also increases the deduction limits for qualified conservation easements for 2006 and 2007.

PENSION REFORMS

Background
After years of debate, compromise and often intensely partisan negotiations, Congress has passed a comprehensive pension reform bill. If you are a participant in a traditional single-employer pension plan or a multi-employer plan, you will likely soon be hearing from your plan sponsor.

Traditional Pension Plans in Trouble
Traditional pension plans, which pay a defined benefit over a period of time, are in trouble. Many are underfunded. Others have been turned over to the Pension Benefit Guaranty Corporation (PBGC), the pension payor of last resort. Why have so many failed? The evolution of our economy from an industrial/manufacturing base to a service-oriented one has contributed. Global competition is also a factor. More and more companies have either terminated their traditional pension plans or converted them to 401(k)s or other types of savings arrangements.

Currently, about 30,000 traditional pension plans are underfunded. Some are teetering on collapse. This crisis spurred Congress to enact a comprehensive pension reform bill. The new law aims to prevent any more troubled plans from folding and dumping their obligations on the PBGC, which already has a deficit of nearly $30 billion. Most underfunded plans are required to become fully funded over seven years.

Permanent Retirement Savings Incentives
If you’ve been making higher contributions to IRAs, 401(k)s and similar arrangements, catch-up contributions, and enjoyed greater portability, you’ve benefited from enhanced retirement savings incentives enacted in 2001. Five years ago, Congress passed the Economic Growth and Tax Relief Reconciliation of 2001 (EGTRRA). This law created many new incentives to encourage people to save more for retirement. However, because of its huge price tag, Congress made EGTRRA temporary. All of its tax breaks, including the retirement savings incentives, had been set to expire in 2011. The new pension reform bill makes them permanent. Instead of expiring on December 31, 2010, as scheduled, they are now extended permanently.

Here are some of the highlights.

Higher IRA contribution dollar amounts. EGTRRA gradually raised the amount you can contribute annually to an IRA. For 2006, it is $4,000. That amount rises to $5,000 in 2008. The new law makes the $5,000 amount permanent and adjusts it for inflation after 2008.

Higher dollar limits on defined contribution plans. If you have a 401(k), 457 or similar plan, the new law makes permanent EGTRRA’s higher dollar limits on defined contribution plans ($44,000 in 2006), as well as elective deferrals for 401(k)s, 457s and SIMPLE plans. The new law also makes permanent EGTRRA’s more generous treatment of compensation that may be taken into account under a plan.

Catch-up Contributions. If you are age 50 or older, you should be making catch-up contributions. EGTRRA allowed individuals age 50 and older to make additional contributions to IRAs, 401(k)s and other arrangements. For 2006, you make an additional catch-up contribution of $1,000 to an IRA if you are age 50 or older. You can make an additional catch-up contribution of $5,000 to a 401 (k) plan if you are age 50 or older. Because EGTRRA is temporary, you would not have been able to make catch-up contributions after 2010. The new pension reform law makes catch-up contributions permanent. It also indexes the $5,000 401 (k) catch-up amount for inflation but not the $1,000 IRA catch-up amount.

Roth 401(k)s. You’ve probably heard a lot about Roth 401(k)s over the past few months. While they were created as part of EGTRRA in 2001, employers could only start offering them this year. Roth 401(k)s are similar to Roth IRAs. Depending on your income and where you are at in your work life, if you’re just starting out or nearing retirement, Roth 401(k)s can be a valuable addition to your retirement portfolio. Until this new law, many employers were reluctant to offer Roth 401(k)s because they would have expired after 2010. The new law makes them permanent, and this could encourage more employers to offer them.

New and Enhanced Incentives
Besides making the retirement savings breaks in EGTRRA permanent, the pension reform law also creates some new incentives. You can ask the IRS to deposit your tax refund into an IRA (effective for 2007). The new law also allows direct rollovers from a qualified retirement plan, tax sheltered annuity or government plan directly to a Roth IRA and will treat it as a Roth conversion if all other qualifications are met (effective for 2008). In another important development, non-spousal beneficiaries can roll over their interests in a qualified retirement plan, government plan or tax-sheltered annuity into an IRA (effective for 2007). Previously, this treatment was only available to spouses. The new law also allows IRA and 401(k) providers to offer personalized investment advice (starting in 2007).

More Incentives
In addition to these valuable savings incentives, the new pension reform law also makes permanent: greater portability for 403(b) and 457 plans; faster vesting of employer matching contributions; and the saver’s credit. For small businesses thinking of starting a pension plan, the new law makes permanent the tax credit for start-up costs.

Avoiding a Bailout
Before closing, let’s take another look at the pension reform parts of the new law. As we said earlier, approximately 30,000 plans are underfunded to the tune of $450 billion. Congress wants these plans to survive, so it is giving plans seven years (longer for the airline industry) to become fully funded. “At-risk” plans, which are critically underfunded, get some additional help, but they also have more responsibilities to their participants. The new law also changes the rules for valuing pension liabilities. Most of the pension reform provisions take effect after 2007, with some exceptions.

START PLANNING

The new pension reform law is 900 plus pages. It impacts everyone and not only individuals with traditional pension plans. The retirement savings incentives in the new law are invaluable and can significantly maximize your retirement portfolio and give you generous tax breaks. The new charitable contribution rules are a mixed bag. Some are generous; other less so.

To take full advantage of the new law, you have to act soon. While many of the new incentives are permanent, others are temporary. Some take effect this year but others not until 2007 or beyond. Give our office a call today. We’ll carefully review your situation and tailor a plan to get you the most out of this valuable new law.

As always, I am available to discuss any of these matters with you.

Your resource for all of your tax, financial, and business planning matters,

Lawrence L. Richards, C.P.A.
December 2006

Postscript
From Los Angeles Times, September 4, 2006, page 1 article “Law May Hasten Decline of Pensions”.

DuPont last week became the third major corporation (after Tenneco, Inc. and Blount International) to announce its reduction of retirement benefits since Congress passed the Pension Protection Act of 2006 on August 3rd. All three companies said they would improve their employees’ 401(k) savings plans. Separately, bankruptcies such as UAL Corp, parent of United Airlines have put pressure on the Pension Benefit Guaranty Corp.

The pension system is in hasty retreat, and little in the new law is likely to stop the trend. This may be the tip of the iceberg; a lot of companies will probably freeze their plans in 2007.

Impending regulatory changes will only accelerate the demise of old-style pensions that guarantee steady income as long as retirees live. Tougher pension accounting rules are scheduled to take effect by the end of this year. The Financial Accounting Standards Board will require companies to include pension funding obligations in their balance sheets, potentially reducing some firms’ net worth. Many see traditional pensions as costly weights on a company’s competitiveness in a very tough competitive environment.

Practical Tip
You should no longer rely only on an employer or the social security system to provide your retirement. Every working person will have to learn how to save a portion of their earnings for their own retirement. We are available to provide general guidance in this area.

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TAX HIGHLIGHTS FOR 2006