Tax Changes You Should Know for 2005 Returns
Every year, you have to file tax returns and every year there are changes to the tax code. Here are some key changes for 2005 to keep in mind when you prepare returns.
Tax Changes You Should Know for 2005 Returns
2005 was a fairly quite year when it came to changes to the tax code. Most changes were in the form of tweaks, instead of major overhauls. This break seems to have given the IRS a change to clean up some of its procedures as it has started simplifying forms. Nonetheless, here are changes to keep in mind when preparing your tax returns.
1. Donations of automobiles to charities are being treated differently from 2005 forward. If you donated a car to charity in 2005, you may be in for a minor shock. Instead of claiming fair market value, the deduction for the donation is now limited to the actual gross payment received by the charity when auctioning off the automobile. The charity you donated to should have sent you correspondence indicating the amount in question. If they did not, contact them to get one so you know what you can deduct.
2. The business mileage allowance is a two-tier system for the 2005 tax year. For business miles incurred during the first eight months of the year, the deduction is 40.5 cents a mile. For the last four months of 2005, the deduction is a whopping 48.5 cents a mile. This odd use of two calculations is due to the explosion in gass prices in 2005.
3. In a positive development, the exemption amount on your tax returns has gone up. For each exemption, you can now deduct a hefty $3,200 per exemption. Keep in mind, however, that exemptions are graduated per your adjusted gross earnings. The more you make, the less of an exemption you can claim. The specific graduated percentages depend on your filing status, so you’ll have to take a look at the tax tables to ascertain the impact on your tax filings.
4. The standard deduction that can be claimed by those who do not itemize has gone up. Again, it depends on your filing status, so make sure you take a close look at the numbers on whatever version of form 1040 you are using this year.
5. The earned income tax credit assists low income taxpayers by cutting the amount of taxes that have to be paid. To claim the tax credit, you have to be earning under a certain amount. This amount has increased for the 2005 tax year. You’ll have to look at your tax form to get the specific amount as it varies pursuant to your filing status and the number of children you are claiming.
6. If you lived in any area devastated by Hurricane Katrina, the IRS is giving out major concessions to help alleviate any tax problems. Go to the IRS web site to learn more.
As you can see, the tax changes for 2005 aren’t particularly significant. Still, you need to know them when you file.
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