The maximum amount of net earnings subject to the social security part of the self-employment tax for tax years beginning in 2005 has increased to $90,000. All net earnings of at least $400 are subject to the Medicare part of the tax.

You may be able to claim a domestic production activities deduction (DPAD) for tax years beginning after 2004. For 2005, your DPAD is generally 3% of the smaller of:

However, your DPAD generally cannot be more than 50% of the Form W-2 wages you paid to your employees.

For more information, see Form 8903, Domestic Production Activities Deduction.

If you sell or otherwise dispose of multiple amortizable section 197 intangibles after August 8, 2005, in a single transaction or series of related transactions, ordinary income recapture is figured as if all such intangibles were a single asset. Section 197 intangibles include patents, copyrights, governmental licenses and permits, covenants not to compete, franchises, trademarks, and trade names. For more information, see Publication 535, chapter 9.

Outright sales of timber held for more than 1 year by landowners qualify for capital gains treatment after 2004. For more information, see the instructions for Part III of Form T.

For tax years ending after August 8, 2005, the 50,000 barrels-per-day limit for purposes of determining if an independent producer of oil or gas can use the percentage depletion method increased to 75,000 barrels, based on the average, rather than the actual, daily runs for the tax year. For more information, see Publication 535, chapter 10.

For property placed in service after August 8, 2005, you may elect to deduct 50% of the cost of any qualified refinery property located in the United States. For more information, see Internal Revenue Code section 179C.

The research credit has been expanded as follows.

For more information, see Form 6765, Credit for Increasing Research Activities.

The investment credit has been expanded to include the following new credits for periods after August 8, 2005.

For more information, see Form 3468, Investment Credit.

The distilled spirits credit is a new general business credit available to distillers, importers, and eligible wholesalers of distilled spirits for the cost of financing the federal excise tax on bottled distilled spirits. The credit applies to tax years beginning after September 30, 2005. See Form 8906, Distilled Spirits Credit, for more information.

New Form 8907, Nonconventional Source Fuel Credit, must be filed to claim this credit for tax years beginning after 2004. For tax years ending after 2005, this credit will be treated as a general business credit. In certain circumstances, the credit has been extended to facilities that produce coke and coke gas fuel. For more information, see Form 8907.

You can claim this new general business credit for certain:

The fuel may be in a qualified mixture. A small agri-biodiesel producer credit is also available for tax years ending after August 8, 2005. For more information, see Form 8864, Biodiesel and Renewable Diesel Fuels Credit.

The renewable electricity production credit was extended for qualified facilities placed in service before January 1, 2008. The credit has been expanded to include electricity from qualified hydropower production for facilities placed in service after August 8, 2005. The credit period is increased to 10 years for open-loop biomass (using agricultural livestock waste), geothermal, solar energy, small irrigation power, landfill gas, and trash combustion facilities placed in service after August 8, 2005. For tax years ending after August 8, 2005, certain cooperatives can elect to allocate any part of the renewable electricity, refined coal, and Indian coal production credit among its patrons. See Form 8835, Renewable Electricity, Refined Coal, and Indian Coal Production Credit, for more information.

For tax years beginning after 2004 and before 2008, certain taxpayers may be able to claim a credit for expenditures made to maintain railroad track (including roadbed, bridges, and related track structures) owned or leased by a Class II or Class III railroad. For more information, see Form 8900, Qualified Railroad Track Maintenance Credit.

For tax years beginning after 2004, the maximum number of shareholders that an S corporation may have has increased from 75 to 100.

For purposes of the 100 shareholder limit, members of a family are treated as one shareholder. A family is defined as the common ancestor, the lineal descendants of the common ancestor, and the spouses (or former spouses) of the lineal descendants or the common ancestor. For more information, see Internal Revenue Code section 1361(c)(1).

All amounts deferred after 2004 under a nonqualified deferred compensation (NQDC) plan for all tax years are currently includible in gross income and subject to additional taxes to the extent not subject to a substantial risk of forfeiture and not previously included in gross income, unless certain requirements are met. This change may also apply to deferrals made prior to 2005 under certain circumstances. Federal income tax withholding and new reporting requirements also apply to NQDC. See section 5 of Publication 15-A, Employer's Supplemental Tax Guide, for more information.

You can generally exclude a limited amount of the value of qualified parking and commuter highway vehicle transportation and transit passes you provide to an employee from the employee's wages subject to employment taxes. For 2005, the monthly exclusion for qualified parking has increased to $200 and the monthly exclusion for commuter highway vehicle transportation and transit passes has increased to $105. See Qualified Transportation Benefits in section 2 of Publication 15-B, Employer's Tax Guide to Fringe Benefits.

The deposit threshold for FUTA tax has increased from $100 to $500. The $500 threshold applies to FUTA tax deposits required for taxes reported on Form 940 and 940-EZ, Employer's Annual Federal Unemployment (FUTA) Tax Return, and 940-PR, Planilla Para La Declaración Anual Del Patrono—La Contribución Federal Para El Desempleo (FUTA), for periods beginning after 2004.

For payments made after 2004, the flat withholding rate on supplemental wage payments that exceed $1,000,000 during the year has increased to 35%. See section 7 of Publication 15 (Circular E) for more information.

Form 7004, Application for Automatic 6-Month Extension of Time To File Certain Business Income Tax, Information, and Other Returns, replaces the following extension forms for tax years which end on or after December 31, 2005.

All returns listed on page 1 of Form 7004 are eligible for an automatic 6-month extension of time to file from the due date of the return. See the instructions for Form 7004 for details.

The maximum amount of net earnings subject to the social security part of the self-employment tax for tax years beginning in 2006 has increased to $94,200. All net earnings of at least $400 are subject to the Medicare part of the tax.

Generally, you can deduct only 50% of your business-related meal expenses. You can deduct a higher percentage for meal expenses while traveling away from your tax home for business purposes if the meals take place during or incident to any period subject to the Department of Transportation's “hours of service” limits. (These limits apply to workers who are under certain federal regulations.) The percentage increases to 75% for 2006. Business meal expenses are covered in chapter 1 of Publication 463. Reimbursements for employee meal expenses are covered in chapter 13 of Publication 535.

For property placed in service in 2006 or 2007, you can deduct the cost of energy efficient building property. The maximum deduction for any building for all tax years is $1.80 multiplied by the square footage of the building. Energy efficient building property includes property installed as part of:

The property must be certified as being part of a plan to reduce annual energy and power costs for those systems by at least 50% in comparison to a reference building that meets certain requirements. For more information, see Internal Revenue Code section 179D.

Generally, the work opportunity credit and the welfare-to-work credit have expired for wages paid to individuals who began working for you after 2005.

You may be able to claim this credit if you place an alternative motor vehicle in service for business or personal use after 2005. An alternative motor vehicle must meet certain requirements and be a new:

For more information, see Form 8910.

You can claim this credit if you place qualified alternative fuel vehicle refueling property in service for business or personal use after 2005. This includes certain property used to store or dispense a clean-burning fuel or recharge motor vehicles propelled by electricity. For more information, see Form 8911.

An eligible contractor may claim a credit of up to $2,000 for each energy efficient home constructed and substantially completed by the contractor after August 8, 2005. The home must also be acquired in 2006 or 2007 from the contractor by a person for use as a residence in the United States. The credit is allowed in the tax year the home was acquired from the contractor. Construction includes substantial reconstruction and rehabilitation. For a manufactured home, the manufactured home producer is treated as an eligible contractor. The home must be certified as having a level of annual heating and cooling at least 50% below the annual level of a comparable dwelling unit with the building envelope components accounting for at least a 10% reduction. For certain manufactured homes, the 50% requirement is reduced to 30%, or it does not apply if the home meets the requirements of the Energy Star Labeled Homes program. For more information, see Form 8908, Energy Efficient Home Credit.

For periods in 2006 and 2007, the investment credit for energy property has been expanded to include the business installation of qualified fuel cells, stationary microturbine power plants, and equipment that uses solar energy for illumination. In addition, the credit percentage has increased to 30% for solar energy property placed in service in 2006 and 2007. For more information, see Form 3468.

The credit has been expanded to include Indian coal sold after 2005 over a 7-year credit period. See Form 8835 for more information.

For tax years beginning in 2006 and 2007, qualified producers and manufacturers of certain energy efficient appliances may be able to claim a tax credit for dishwashers, clothes washers, and refrigerators that meet certain energy efficient standards and are produced or manufactured during the calendar year ending with or within the tax year. For more information, see Internal Revenue Code section 45M.

New credits are available if you are a holder of a clean renewable energy bond or Gulf tax credit bond. If you hold a clean renewable energy bond or Gulf tax credit bond on one or more credit allowance dates of the bond, you are allowed a credit in the amount of 25% of the annual credit on each credit allowance date. For more information on these credits, see Form 8912, Clean Renewable Energy Bond Credit and Gulf Bond Credit, when it is released in 2006.

You can generally exclude a limited amount of the value of qualified parking you provide to an employee from the employee's wages subject to employment taxes. For 2006, the monthly exclusion for qualified parking has increased to $205. See Qualified Transportation Benefits in section 2 of Publication 15-B.

For wages paid after December 31, 2005, employers must use a new procedure to figure federal income tax withholding on wages of nonresident aliens. For more information, see Publication 15 (Circular E).

To reduce burden on small employers, the IRS has simplified the rules for filing employment tax returns to report social security, Medicare, and withheld federal income taxes. Starting with calendar year 2006, certain employers must file new Form 944, Employer's ANNUAL Federal Tax Return, instead of the Form 941, Employer's QUARTERLY Federal Tax Return. The IRS will be sending a notice to each employer that must file Form 944. Generally, the first annual Form 944, for calendar year 2006, is due January 31, 2007.

Two Spanish versions of Form 944 will be available, Forma 944-PR, Planilla para la Declaración Federal ANUAL del Patrono, for employers in Puerto Rico, and Forma 944(SP), Declaración Federal ANUAL de Impuestos del Patrono o Empleador, for employers in the United States. Employers in American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, and the U.S. Virgin Islands use Form 944-SS, Employer's ANNUAL Federal Tax Return.

For more information about annual employment tax filing and tax deposit rules, see Treasury Decision 9239. You can find T.D. 9239 on page 401 of Internal Revenue Bulletin 2006-6 at www.irs.gov/pub/irs-irbs/irb06-06.pdf.

In addition to certain provisions discussed earlier, the following tax benefits have expired as shown below.