Personal exemptions and standard deductions will rise, tax brackets will widen and individuals will be able to make larger tax-free gifts in 2006, thanks to inflation adjustments. By law, a variety of tax provisions must be revised each year to keep pace with inflation. As a result, more than three dozen tax benefits, affecting virtually every taxpayer, are being modified for 2006. Key changes affecting 2006 returns, filed by most taxpayers in early 2007, include the following:

n The value of each personal and dependency exemption, available to most taxpayers, will be $3,300, up $100 from 2005.

n The new standard deduction will be $10,300 for married couples filing a joint return, $5,150 for singles and $7,550 for heads of household. Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.

n Tax-bracket thresholds will increase for each filing status. For married couples filing a joint return, for example, the taxable-income threshold separating the 15 percent bracket from the 25 percent bracket will be $61,300, up from $59,400 in 2005

n The annual gift tax exemption will be $12,000, up from $11,000 in 2005.

Standard mileage rates

The Internal Revenue Service recently issued the 2007 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning Jan. 1, the standard mileage rates for the use of a car (including vans or pickups) is:

n 48.5 cents per mile for business miles driven;

n 20 cents per mile driven for medical or moving purposes; and

n 14 cents per mile driven in service to a charitable organization.

The new rate for business miles compares to a rate of 44.5 cents per mile for 2006. The new rate for medical and moving purposes compares to 18 cents in 2006.

The primary reasons for the higher rates for business, medical and moving purposes are based on an annual study of the fixed and variable costs of operating an automobile.

The mileage rate for charitable miles is set by statute.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System, after claiming a Section 179 deduction for that vehicle, for any vehicle used for hire or for more than four vehicles used simultaneously.

(Rob Wall, CPA, is a partner in the Coos Bay firm Wall & Wall PC, Certified Public Accountants.)