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.