The tax code is updated every year. Because the new rules can have a dramatic impact on your personal finances, it's a good idea to review the latest changes before completing your return. Below, we've highlighted some of the changes for 2006.

AMT Exemption Upped
For tax year 2006, the exemption amount for alternative minimum tax (AMT) has been increased as follows:

New Restrictions on Charitable Contributions

Cash Contributions
All cash contributions made in tax years beginning after August 17, 2006, to any qualified charity must be supported by a dated bank record or a dated receipt. The tax year for most individual taxpayers begins on January 1.

Clothing and Household Items
Beginning with contributions made after August 17, 2006, no deduction is allowed for most contributions of clothing and household items unless the donated property is in good used condition or better.

Earned Income Credit Amounts Increased

The maximum amount of income you can earn and still get the credit is higher for 2006 than it is for 2005. You may be able to take the credit for 2006 if:

The maximum amount of adjusted gross income (AGI) you can have and still get the credit has also increased. You may be able to take the credit if your AGI is less than the amount in the above list that applies to you.

Investment Income Amount
The maximum amount of investment income you can have in 2006 and still get the credit increases to $2,800.

Hybrid Vehicles List Expanded
For 2006, the list of vehicles that are qualified hybrid vehicles for the Alternative Motor Vehicle Credit has been expanded. The tax credit for hybrid vehicles applies for vehicles purchased on or after January 1, 2006, and could be as much as $3,400 for those who purchase the most fuel-efficient vehicles.

See IR-2006-86, dated June 1, 2006, and the news article, "Summary of the Credit for Qualified Hybrid Vehicles" at www.irs.gov for more information.

Exemption Amount Increased
The amount you can deduct for each exemption has increased from $3,200 in 2005 to $3,300 in 2006.

You may lose part of the benefit of your exemptions if your adjusted gross income is above a certain amount. The amount at which the phase-out begins depends on your filing status. For 2006, the phase-out begins at:

If your adjusted gross income is above the amount for your filing status, use the Deduction for Exemptions Worksheet in the Form 1040 instructions to figure the amount you can deduct for exemptions.

Wage Limits Increased
The IRS has raised the amount of income subject to Social Security tax. The maximum amount of 2006 wages subject to the tax has increased to $94,200 from $90,000. For Medicare tax, all covered 2006 wages are subject to the tax.

Standard Deductions Raised
The standard deduction for taxpayers who do not itemize deductions on Schedule A of Form 1040 is, in most cases, higher for 2006 than it was for 2005. The amount depends on your filing status, whether you are 65 or older or blind, and whether an exemption can be claimed for you by another taxpayer.

The basic standard deduction amounts for 2006 are:

The standard deduction amount for an individual who may be claimed as a dependent by another taxpayer may not exceed the greater of $850 or the sum of $300 and the individual's earned income.

Standard Mileage Rates Increased
For tax years beginning in 2006, the allowable deductions for the standard mileage rate are as follows:

Business Miles
The standard mileage rate for the cost of operating your car changes to 44.5 cents a mile for all business miles driven.

Charitable Services
The standard mileage rate allowed for use of your car when you use your car to provide charitable services to a charitable organization is 14 cents a mile.

Charitable Services — Hurricane Katrina Relief Services
If you used your vehicle in giving services to a charitable organization to provide relief related to Hurricane Katrina, the standard mileage rate allowed for use of your car is 32 cents a mile.

Medical Reasons
The standard mileage rate allowed for use of your car for medical reasons is 18 cents a mile.

Moving
The standard mileage rate for determining moving expenses is 18 cents a mile.

Tax-Exempt Interest Reported
Beginning in 2006, state and local governments are required to report interest paid on tax-exempt state and local bonds on Form 1099-INT, Interest Income. This amount must be shown on your tax return and is for information only.

Where to Find More Information
Visit www.irs.gov for more details, including 2006 federal income tax rate schedules you can use to compute your estimated tax.