New Tax Rules for the November 2006 CFP Certification Examination

President Bush signed the Tax Increase and Prevention and Reconciliation Act on May 17, 2006 just in time to meet the CFP Board of Standards six month cut off for the November 2006 CFP® Certification Examination.

(PRWEB) June 22, 2006 -- President Bush signed the Tax Increase and Prevention and Reconciliation Act on May 17, 2006 just in time to meet the CFP Board of Standards six month cut off for the November 2006 CFP® Certification Examination. As a result, candidates taking the November exam will need to know the changes to the Kiddie Tax rules and the increases in the Alternative Minimum Tax (AMT) exemption amounts.

Congress created the Kiddie Tax rules many years ago to prevent high-income taxpayers from shifting income to their children who are in lower tax brackets. Under the Kiddie Tax rules, any child under the age of 18 will pay taxes on any unearned income (e.g. capital gains, dividends, interest and rental income) above $1,700 in 2006 at the parent’s marginal tax bracket rather than the child’s marginal tax bracket. Prior to the law change, the Kiddie Tax rules only applied to children under the age of 14. However, children under the age of 18 are now subject to these rules on a retroactive basis back to January 1, 2006.

The child will be able to protect the first $850 of unearned income in 2006 entirely from taxes due to the child’s standard deduction. The child will pay tax on the next $850 of unearned income at the child’s marginal tax rate (typically 10%). The child will then pay taxes at his or her parents’ marginal tax bracket (or the higher marginal tax rate in the event the parents are divorce). The child and the parent are still allowed to claim the favorable 15% tax rate for long-term capital gains and qualified dividends.

To illustrate the impact of the Kiddie Tax rules, assume Kay who is 4 years old has $5,000 of interest income in 2006. Kay’s tax rate is 10% and her parents are in the 25% marginal tax bracket. Kay will owe $910 in taxes (0% on the first $850, 10% on the next $850 and 25% on the remaining $3,300 of interest income). If Kay was 18 years old, her tax on the same $5,000 of interest income would be $415 (0% on the first $850 and 10% on the remaining $4,150 of interest income). As a result of the Kiddie Tax rules, Kay will pay $495 more in taxes.

Candidates will also need to know that AMT exemptions amounts have increased to $62,550 for married taxpayers filing a joint return (up from $45,000), $31,275 for married taxpayers filing a separate return (up from $22,500) and $42,500 for single taxpayers and head of household taxpayers (up from $33,750). These increased AMT exemption amount should help some taxpayers avoid having to pay the AMT tax. These increases are also retroactive back to January 1, 2006.

To register for the November 2006 CFP® Certification Examination, please go to the CFP Board’s website at www.CFP.net.

If you need study materials to help you prepare for the exam, please go to Keir Educational Resource’s website at www.keirsuccess.com or call Keir toll free at 800-795-5347.

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