The Brookfield Connecticut Community Network: TAXES

Tax Changes 2005

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To get your copy of The Tax Guide for Home Buyers, Contact Daniel Walker Phone: (203) 775-4128 E-mail libtaxbrookfield@yahoo.com Web: LIBERTY TAX SERVICE    (www.libertytax.com) has over 2,000 offices operating in the United States and Canada.  The company provides free tax advice, free checking of self-prepared returns at each office.  In January 2006, Entrepreneur magazine ranked Liberty Tax Service as #10 on its Franchise 500 overall list of best franchises.  Accounting Today magazine ranked Liberty fastest growing on its list of top 100 tax & accounting companies released in March 2005

Liberty Tax Service Explains Some of the Tax Changes for Filing 2005 Tax Returns 

(Brookfield, CT) There’s nothing as certain as an ever-changing tax code. Besides the usual increases in exemption amounts, standard deductions, and qualifying income levels for the earned income credit, there are several impactful changes, according to Liberty Tax Service. The IRS has implemented a uniform definition of “qualifying child” throughout the tax code in 2005.  In addition, the Katrina Relief Act provided tax breaks for hurricane victims and generous donors and volunteers. Steep gas prices drove up deductible mileage amounts, and filing an extension will be easier for last minute filers. 

 Qualifying Child Defined - The uniform definition of a “qualifying child” will apply for the dependency exemption, head of household filing status, earned income credit (EIC), the child tax credit, and the credit for child and dependent care expenses. In general, all five of the following tests must be met to claim someone as a qualifying child:

Relationship test: The child must be your child. This means that a child of a live-in boyfriend/girlfriend will no longer qualify the non-parent for head of household filing status and the non-parent will not be able to claim that child as a dependent even if they paid for all of that child’s upkeep.

Residency test: The child must have lived with you for more than half of the year.

Age test: A child must be under age 19 at the end of the year, under age 24 at the end of 2005 and a full-time student, or any age if permanently and totally disabled.

Support test: The child must not have provided over half of his or her own support for the year.

Qualifying child test: If the child meets the rules to be a qualifying child of more than one person, you must be the person entitled to claim the child as a qualifying child.

 Suspension of limits on charitable deductions for Hurricane Katrina Relief - Generally, for individuals, contributions to tax-exempt charitable organizations are limited to 50 percent of the taxpayer’s adjusted gross income for the tax year. Any excess amount may be carried over for a period of up to five years. The new law removes the 50 percent limitation for all cash donations to a qualified charitable organization for the period beginning on August 28, 2005, and ending on December 31, 2005.

 Changes for Deductible Mileage - Volunteer mileage for Hurricane Katrina Relief - The new mileage rate for charity work related to Hurricane Katrina is 29 cents per mile during the period of August 25, 2005, through August 31, 2005, and 34 cents per mile from September 1 to the end of the year.

 Business Mileage - The standard mileage rate is 40.5 cents per business mile driven from January 1 through August 31, 2005 and 48.5 cents per business mile driven September 1 through December 31, 2005. 

 Medical and Moving Mileage - The deductible amount for mileage driven during a move and/or for medical purposes is 15 cents per mile from January 1 through August 31, 2005 and 22 cents per mile from September 1 through December 31, 2005.

 Charitable Mileage – The general charitable mileage rate is 14 cents per mile.

 It is advisable to document all mileage by keeping a log or other written record.

Extension Filing Change - Liberty Tax Service wants taxpayers to know that filing an extension request for an additional six months will be much easier starting in 2006.  The IRS will grant taxpayers an automatic six-month filing extension by filing one extension request. A reason for the request does not have to be provided.  Individual taxpayers will file Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, by April 17, 2006, and receive a filing extension until October 17, 2006.  Corporations will file Form 7004, Application for Automatic Extension of Time to File Corporation Income Tax Return, to request and receive a six-month extension.

2005 returns will be the last chance to take advantage of several tax measures that are slated to expire. Teachers will be able to continue claiming the $250 deduction for out-of-pocket classroom supply purchases again this year. Instructors, counselors, principals or aides working in kindergarten through grade 12 who work at least 900 hours in either public or private schools are eligible claim this adjustment for these expenses regardless of whether the taxpayer can itemize or not.  Those who live in one of seven states without a state income tax may deduct their state sales tax again for 2005.  Taxpayers in states with state income taxes can choose to deduct whichever tax bill is higher: their income taxes or state sales taxes.