With
another new year comes another tax filing season -- and another bevy
of tax changes to remember before you (or your tax professional)
prepare your 2005 tax return. Here are a few deductions that you'll
want to pay special attention to.
Charitable contributions:
If you donated a vehicle (including a boat or aircraft) with a
claimed value of more than $500 to a qualified charitable
organization in 2005, your deduction is limited to the gross
proceeds from its sale by the organization. This law addresses
various taxpayers' perceived abuse in overstating the value of
vehicles, boats, and aircraft they donate to charity. Furthermore,
under the above circumstances, you must have a written
acknowledgement of your donation from the organization attached to
your return. Otherwise, you can't deduct your contribution.
Definition of "child":
As odd as it might seem, the tax code is so convoluted that the
definition of a "child" varied from code section to code section,
depending on the tax issues. But in 2005, the same definition of a
qualifying child will apply for each of the following tax benefits:
Credit for child- and dependent-care expenses
seems easy enough,
right? Not so fast. If you have any unusual issues regarding
your child (such as divorce, adoption, foster parenthood, etc.),
make sure you know and understand the rules and the various
tests that must be met.
Clean-fuel vehicles:
The rules have changed significantly. For 2005, the proposed 50%
reduction of the maximum electric vehicle credit and the clean-fuel
deduction has been eliminated. You can claim the maximum electric
vehicle credit allowed for a qualified electric vehicle you placed
in service in 2005, and the maximum deduction allowed for qualified
clean-fuel vehicles or other clean-fuel property placed in service
in 2005.
Standard mileage rates:
Again, something so simple has now become complicated. There are now
a number of different rates, depending on how and when you used your
car. I can't make this stuff up. Here's an overview -- I'd call it
"brief," but I can't do so with a straight face -- of the mileage
rules:
For Jan. 1, 2005, through Aug. 31, 2005, the rates are:
· 40.5 cents a mile for business miles.
· 14 cents a mile for services provided to
charitable
organizations, but...
· 29 cents a mile for charitable services related to
Hurricane Katrina, if driven after Aug. 24, 2005, and before
Sept. 1, 2005.
· 15 cents a mile for medical reasons.
· 15 cents a mile for moving. But because of the "gas
crisis" near the end of the year, some of the rates changed.
Here
are the rates for Sept. 1, 2005, through Dec. 31, 2005:
· 48.5 cents
a mile for business.
· 14 cents a mile, still, for
charity.
· 34 cents a mile for Katrina-related charity.
· 22 cents a mile for medical reasons.
· 22 cents a mile for
moving. In effect, and in order to
claim the appropriate deduction, you'll have to track your mileage
by dates ... both before and after Sept. 1st.
IRA contributions:
If you have a traditional individual retirement account (IRA) and
are covered by a retirement plan at work, you can now have a greater
amount of income without being affected by the deduction phase-out.
The amounts vary, depending on filing status.
Additionally, the amount you (and your spouse if filing jointly) may
be able to deduct as a Roth or traditional IRA contribution will
increase to $4,000, or $4,500 if you're age 50 or older at the end
of 2005. But remember that the income phase-out rules regarding
contributions to a Roth IRA have not changed.
Here are a few tax items that, while not technically change for
2005, and should not be overlooked:
Educators' deduction:
This deduction was scheduled to have expired at the end of 2003, but
was restored for two more years. Therefore, it's still available for
qualified educators for 2005.
Sales tax deduction:
This deduction was new in 2004 and expired at the end of 2005, but
is still available for use for the 2005 tax filing season.
Essentially, taxpayers who itemize deductions will have a choice of
claiming a state and local tax deduction for either sales or income
taxes on their 2004 and 2005 returns. Sales taxes paid on motor
vehicles and boats may be added to the table amount.
Sale of personal residence acquired in a like-kind exchange:
This is another change that might have slipped under the radar for
many taxpayers -- but it's one you need to know. If you convert
rental property to a principal residence, a tax law change may limit
your ability to exclude the gain on the sale of that residence if
you obtained the property through a like-kind exchange.
Generally, a taxpayer can exclude up to $250,000 of a gain on the
sale of a home, provided he or she has owned and used it as a
principal residence for two out of the five years before the sale.
(The exclusion is $500,000 for a married couple, if both meet the
use test.) However, the American Jobs Creation Act of 2004 does not
allow any exclusion if the taxpayer sells the home within five years
of acquiring the property through a like-kind exchange. The new law
applies to sales after Oct. 22, 2004.
