Inside:
For tax years beginning after 2005, an employer's 401(k) plan or 403(b) annuity can include a qualified Roth contribution program (i.e. a "Roth 401(k)") that allows participants to elect to have all or part of their elective deferrals treated as Roth contributions. These deferrals will not be excludable from gross income (i.e. they'll be currently taxed). The annual dollar limit on a participant's Roth contributions will be the applicable Code Sec. 402(g) limitation on elective deferrals (e.g. $15,000 in 2006), reduced by the elective deferrals that are not designated as Roth contributions.
However, final regulations on this EGTRRA provision carry a few surprises that will complicate designated Roth contributions and may make them less attractive to plan participants, including making designated Roth contributions subject to the lifetime required minimum distribution (RMD) rules that apply to non-pension qualified plan payouts.
For tax years after 2004, taxpayers can deduct a percentage of income earned from production activities undertaken in the U.S. The deduction is a percentage of the smaller of the qualified production activities income of the taxpayer for the tax year, or the taxable without regard to the manufacturing deduction, for the tax year. An employer's deduction for the domestic production activities can't exceed 50% of all employees' W-2 wages reported for the tax year.
A taxpayer may be able to claim a credit for buying a hybrid or lean burn vehicle in 2006. The tax credit may be as much as $3,400 for those who buy the most fuel-efficient vehicles. The full amount of the allowable credit is available only up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000 hybrid and advanced lean-burn technology motor vehicle. There is also a new credit for 30% of the cost of "alternative fuel vehicle refueling property" (with a cap of $1,000 for personal property). The new-for-2006 credits replace the deduction for certain clean fuel vehicles and clean fuel property that was available for property placed in service before 2006. You will need guidance from your auto dealership to determine which vehicles qualify for various credits.
Next: Energy Tax Act of 2005