Hurricane Tax Relief
The Gulf Opportunity Zone Act of 2005 extended tax relief to victims of Hurricanes Rita and Wilma.Some Hurricane Tax Relief benefits:
You can use your 2004 income to figure your 2005 Earned Income Credit.
Casualty losses, normally subjected to certain limitations, are fully deductible for Katrina victims.
Charitable Donations, normally limited to 50% of adjusted gross income, are deductible up to 100% of income.
Increased standard mileage rate for the last four months of 2005, and higher rate for work related to Katrina.
Additional personal exemption amount if you provided housing to people displaced by Katrina.
Special rules for claiming dependents who were relocated as a result of Katrina.
For comprehensive Hurricane Tax Relief provisions, see IRS Publication 4492.
New Definition of a Qualifying Child
A new, uniform definition of a child applies for claiming a dependent, the child tax credit, child care tax credit, earned income credit, and head of household filing status. The new rules for claiming dependents will help prevent situations where two or more taxpayers attempt to claim the same child as a dependent. The new law features tie-breaker tests to settle cases in a gray area.
New Rules for Foster Children
To claim a foster child as a dependent, the foster child must be placed in your care by a placement agency, court order, judgment or decree.
Dependents Can No Longer Claim Exemptions for Other Dependents
Admittedly, this happened rarely. If you can be claimed as a dependent by someone else, you cannot claim your own personal exemption, and you cannot claim another person as your dependent.
Domestic Production Activities Deduction (Section 199 Deduction)
Manufacturing businesses may be able to claim a tax deduction worth up to 3% of domestic manufacturing income. This new tax deduction is rather complicated, has a 200+page instruction book, and will requires detailed cost accounting calculations. This new business deduction is calculated on Form 8903. (Instructions not yet released.)
Expanded Individual Retirement Account Deduction
You can deduct up to $4,000 of money you contribute to a traditional IRA plan. (If you are 50 years old or older, you can deduction up to $4,500.) Traditional IRA contributions must be made no later than April 17, 2006, in order to be deducted on your 2005 tax return.
Earned Income Credit
You may be able to claim the Earned Income Credit if you have a qualifying child living with you and your income is less than $35,263 (head of household) or less than $37,263 (married filing jointly). For taxpayers without a qualifying child, the income limit is $11,750 (single) or $13,750 (married filing jointly).
Charitable Donations
New rules for substantiating non-cash donations went into effect. Charitable organizations must provide you with a written statement acknowledging your donation of a car, truck, boat, aircraft, or other vehicle if the value of the vehicle is over $500. Moreover, you can claim a tax deduction based only on the gross proceeds received by the charitable organization when they sold your vehicle. The dollar amount will be reported on the written acknowledgment.
Standard Mileage Rates
For 2005, there are several standard mileage rates:- 40.5 cents per mile for business mileage between January 1 and August 31, 2005
- 48.5 cents per mile for business mileage between September 1 and December 31, 2005
- 15 cents per mile for medical mileage (22 cents per mile from September 1-December 31)
- 14 cents per mile for charity mileage
Higher Maximum 401K Contribution Limits
The maximum amount you can contribute to a 401(k) or other salary deferral plan is $14,000, or $18,000 if you are age 50 or older.
Tax Forms 1040, 1040A, and 1040EZ have been slightly re-designed
The ordering of some of the line items have changed to make certain tax calculations easier.
Where to Mail Your Tax Return
Some people will be mailing their federal tax returns to a different address this year. Find your new mailing address on the IRS Website at http://www.irs.gov/file/content/0,,id=105693,00.html
IRS Resources
Highlights of 2005 Tax Law Changes (IRS Announcement FS-2006-1)Publication 553 Tax Law Changes
