THIS WEEK PRESIDENT

Bush signed into law the Tax Increase Prevention and Reconciliation Act (TIPRA). In it is both good news and bad news for taxpayers. Here are the most important highlights:

Long-Term Capital Gains Rates Extended
The biggest and best news in TIPRA is the extension through 2010 of the very favorable federal income tax rate structure for long-term capital gains (which applies to investment assets held for more than one year) and qualified dividends (which include most dividends paid by large corporations as well as those by paid out by small closely held domestic C corporations).

Specifically, the highest federal rate on most long-term gains will remain at the current 15% mark through 2010. The current 5% rate on most long-term gains earned by individuals in the 10% and 15% federal income tax brackets (the two lowest brackets) will continue through 2007 and then drop to 0% (that's right folks!) for 2008 through 2010. These same rates will also apply through 2010 to qualified dividends. (Before the TIPRA changes, the rates on long-term gains and qualified dividends were scheduled to rise after 2008.) TIPRA also extends through 2010 the current 28% top federal rate for long-term gains from collectible sales and the 25% maximum rate for long-term real-estate gains attributable to depreciation write-offs.

Bottom Line: It's basically business as usual for investors except those in the lowest two tax brackets who can now look forward to three years of that sweet 0% tax rate (for 2008 through 2010).

Another One-Year Band-Aid for the AMT
More good news: TIPRA includes two one-year fixes (for 2006 only) that greatly reduce the odds you will be hit with the dreaded alternative minimum tax (AMT) this year.

The first fix increases the 2006 AMT exemptions (basically deductions claimed when calculating whether you owe the AMT or not) to the following amounts:

Thanks to the second fix, you can use your nonrefundable personal tax credits (such as the dependent care credit and the education tax credits) to reduce both your 2006 regular tax bill and your 2006 AMT bill (same as last year).

Bottom Line: After these fixes, it's basically business as usual on the AMT front, too. So if you did not owe the AMT last year, you probably won't owe it this year either unless something in your tax life has changed significantly (such as getting a big raise, triggering a bunch of capital gains, exercising appreciated employer stock options, moving into a state with a hefty personal income tax, or becoming the parent of quadruplets).

Bad News: Kiddie Tax Rules Now Affect Older Children

Most tax laws include at least one unexpected curve ball, and TIPRA is no exception. This time it's exposing lots more dependent children to the so-called Kiddie Tax. Under the Kiddie Tax rules, a dependent child's unearned income (typically from investments) can be taxed at the parent's federal income tax rates (which can be as high as 35%, or 15% for long-term gains and dividends) instead of at the child's lower rates (which can be as low as 10%, or 5% for long-term gains and dividends).

Before 2006, the Kiddie Tax only applied to dependent children who had not reached the age of 14 by year-end. In other words, the Kiddie Tax was a nonissue for the year your child turned 14 and for all later years. That was then; this is now. Starting with 2006 (yes, the rules are being applied retroactively to the start of 2006), the Kiddie Tax rules apply to dependent children who have not reached age 18 by year-end. In other words, if you have a dependent child who will still be 17 or younger as of Dec. 31, 2006, he or she is a potential Kiddie Tax victim for this year.

But don't overreact. The Kiddie Tax won't apply unless your under-age-18 dependent child has 2006 unearned income in excess of $1,700. Even if that's the case, the higher Kiddie Tax rates will only apply to unearned income above the $1,700 threshold.

Bottom Line: You may have a dependent child who is exposed to the Kiddie Tax this year, even though it didn't apply last year.

More Roth Conversions But Not Until 2010
Converting a traditional IRA into a federal-income-tax-free Roth IRA can be a really good tax-saving idea, depending on your circumstances. However, under the current rules, you're ineligible for the Roth conversion privilege in any year when your modified adjusted gross income (MAGI) exceeds $100,000.

The new law eliminates the MAGI restriction. That's great news, but unfortunately this change won't kick in until 2010. Until then, the current $100,000 rule will continue to prevent higher-income folks from taking advantage of the Roth conversation strategy.

Bottom Line: Folks, this is news I think you can safely ignore until further notice. Why? Because Congress could easily change its mind and eliminate the favorable Roth conversion provision between now and 2010 without having to take hardly any political flack for doing so. I think it's at least an even bet this change never goes through. But that's just my opinion.

Small Business Delight: Section 179 Deduction Rules Extended Two More Years
If you own a small business, you probably know about the so-called Section 179 deduction privilege. It allows many small operators to immediately deduct the full cost of most equipment and software additions (whether new or used) in Year One. For this year, the maximum Section 179 write-off is a whopping $108,000. However, the deduction was scheduled to fall back to only $25,000 after 2007. TIPRA extends the current pro-taxpayer Section 179 rules by another two years through 2009.