The Lawyer's Office

Every new year, there are changes in many phases of business operations that affect almost everyone.

Notification of these changes come from various sources, and it seems when you want to reference a specific one, it's never handy. Here's a handy guide with several. You may wish to clip and save it.

The compensation limit for allocating employer and employee contributions increases from $210,000 in 2005 to $220,000 in 2006.

The defined benefit maximum annual benefit increases from $170,000 to $175,000. The defined contribution maximum annual addition – excluding 401(k) catch-up contributions – increases from $42,000 to $44,000.

The maximum 401(k) deferral limit increases from $14,000 to $15,000. The maximum 401(k) deferral catch-up contribution limit for participants over age 50 increases from $4,000 to $5,000; highly compensated employees, from $95,000 to $100,000.

The Social Security taxable wage base increases from $90,000 to $94,200. The IRA contribution limit through age 49 remains at $4,000. The IRA contribution limit for age 50 and over increases from $4,500 to $5,000.

Beginning in January 2006, laws governing 401(k) and 403(b) defined contributions will allow participants to designate all or portions of their elective salaries as Roth contributions.

You may wish to investigate the possibility of offering this option within your plan. There are several key considerations you will need to review before you can offer this, including updating of plan documents.

Although Roth contributions are after-tax, upon qualified distribution, the contributions and earnings are free from taxation. This can provide both yourself and your employees even more flexibility in retirement planning.

Beginning Jan. 1, 2006, the standard optional mileage rates to calculate deductible costs for the use of a car (including vans, pickups or panel trucks) will be:

* 44.5 cents per mile for business miles driven.

* 18 cents per mile driven for medical or moving expenses.

* 14 cents per mile driven in service of charitable organizations other than activities related to Hurricane Katrina relief.

The new rate for business miles compares to a rate of 40.5 cents per mile for the first eight months of 2005. In September, the IRS made a special one-time adjustment for the last four months of 2005, raising the rate for business miles to 48.5 cents per mile in response to a sharp increase in gasoline prices.

Per the IRS news release that announced these new rates, the standard mileage rates for business, medical and moving purposes are based on an annual study by Runzheimer International of the fixed and variable costs of operating an automobile. The rate for charitable miles is set by statute.

The data above are provided for informational purposes only. Each business or individual may have specific circumstances that could make the situation different, thereby disallowing use of the standardized limits and/or rates outlined above.

You should consult your tax adviser with further questions.

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