Tax Time - IRS Changes You Should Be Aware Of
The arrival of those annual financial statements known as W-2s and 1099s means that it is time to deal with some of unfinished business from last year-the preparation of the 2005 tax return. While there have not been as many radical changes to the Internal Revenue Code as there have in some years, there are always new items and key numbers for taxpayers to be aware of. The personal exemption now reduces taxable income by $3,200, which is an increase of $100 from 2004, while the standard deduction for singles is now an even $5,000 ($6,000 for those over 65 years of age), a jump of $150 over the 2004 amount. The marriage penalty, as far as the standard deduction goes, has been eliminated, as it is now $10,000 for married couples filing jointly ($12,000 if both spouses were over 65 years of age in 2005).
As any motorist knows, the price of gasoline soared last year. The Internal Revenue Service has conceded as much but it has done so in a rather strange way. If you used your automobile for business in the first eight months of 2005, you are allowed to deduct 40.5 cents per mile driven as the standard rate. That amount shoots up to 48.5 cents per mile for miles driven from Sept. 1 to Dec. 31. Obviously, taxpayers will be on the honor system to report mileage or to at least make a reasonable attempt to calculate this deduction. As always, you can deduct the actual costs of repairs and gasoline if the actual receipts you have collected exceeds that of the standard mileage calculation. Higher gasoline costs has affected other deductions as well. The IRS has always allowed a deduction for the use of one’s car for doing charitable work, but it has long been a measly 14 cents per mile. That is still the case for the first eight months of 2005, but that figure jumped to 34 cents per mile for the period from Sept. 1 through Dec. 31. In addition, the IRS has permitted a deduction for transportation costs with respect to both medical and moving expenses. For both of these categories, the standard mileage rate is 15 cents per mile for the first eight months of 2005, and 22 cents per mile for the last third of the year. Don’t ask me why the tax laws allow different mileage rates for the different categories of deductions. You may have noticed that you were not as bombarded by radio ads urging you to donate your old car to a nonprofit organization at the end of 2005 as you were at the end of past years. That is because the IRS wants to crack down on an area where many were taking generous deductions in their opinion. Until 2005, the IRS basically went along with the car values listed in the Kelly Blue Book. Now it is demanding proof showing how much your car actually netted when it was sold by the charity in question. Apparently, the IRS felt that the Kelly listings were a bit inflated. If the charity did not sell your car but used it for its own operations, you will need documentation of that from the nonprofit organization and the Kelly Blue Book figure will be allowed. If you had an old clunker that you just wanted to get rid of, the IRS will allow you to take a deduction of $500 for the donation of your vehicle on Form 8283, no questions asked.
Read this entire article at the Queens Chronicle..