While most individuals are barely thinking about their 2005 US Federal income tax, certain inflation adjusted tax brackets and other amounts for 2006 have been projected.

We have also been alerted to a scheme where Bermuda individuals are receiving faxes, ostensibly from the Internal Revenue Service seeking personal information.

2006

For married taxpayers filing joint tax returns the 10 percent tax bracket will increase from $14,600 to $15,100. The 35 percent tax threshold will increase from $326,450 to $336,650.

For single taxpayers, the 10 percent tax bracket will increase from $7,300 to $7,550. The 35 percent tax threshold will increase from $326,450 to $336,650.

The standard deduction for a single taxpayer will increase from $5,000 to $5,150 and for married taxpayers filing jointly; it will increase from $10,000 to $10,300.

The phase out of the personal exemption will start at $150,500 for single taxpayers and at $225,750 for married taxpayers filing jointly.

The 3 percent disallowance of itemised deductions will start at $150,500.

The annual gift tax exclusion will increase to $12,000.

If US Savings Bonds are redeemed to pay expenses for higher education, the interest income may be excluded from income if a taxpayer's income is less than $63,100.

The ability to expense up to $100,000 in assets that were previously depreciated will be increased to $108,000.

The HOPE and Lifetime Learning credit is increased to $1,100, and will be phased out at $90,000 for married taxpayers filing jointly.

The $2,500 student loan interest deduction will continue to be phased out at $105,000 for married taxpayers filing jointly.

The exclusion for daily benefits received under a qualified long-term care insurance contract will be $250 a day.

The first $120,000 of gifts in 2006 to a spouse who is not a US citizen will not be included in taxable gifts.

A US person receiving aggregate foreign gifts exceeding $12,760 in 2006 must file an information return.

Information Scam

Bermuda residents have been receiving faxes that appear to have been sent by the United States Internal Revenue Service indicating that to protect their exemption from US income tax on interest income that the individual needs to complete an attached Form that requests bank information, pin numbers, and other personal information.

The cover letter bears a facsimile of the IRS symbol and in block letters reads: Internal Revenue Services IRS.gov. The letter is not addressed to a particular person and is sent to "Dear Sir". Fax departments tend to route these to US citizens. The letter asks the individual to complete the attached Form W-8BEN U. There is no such IRS Form number.

However, the number is similar to Form W-8 BEN that financial institutions would sent to a Bermuda national who has investment income from US sources.

However, when you compare the real Form W-8 BEN with the faxed Form, you will immediately note a significant amount of typos, as well as the fact that the "sham" Form asks for information that is not requested on the real Form.

If you receive such a fax, contact the police.

The tax advice given by this column is, by necessity, general in nature. You should, of course, check with your own US tax consultant as to how specific transactions affect you since tax advice varies with individual circumstances.

James Paul Sabo, CPA, is the President of ETS Ltd., P.O Box HM 1574, Hamilton HM GX , Bermuda. Questions should be sent to: jsaboexpatriatetaxservices.com