Tax Law Changes You'll Need to Consider for 2005 Income Tax Returns (Free Money Finance)

January 17, 2006

Tax Law Changes You'll Need to Consider for 2005 Income Tax Returns

Here's some great advice from the tax experts at H&R Block and their National Tax Advice Day web site:

Now’s the time to highlight tax law changes you’ll want to know as you file on income you earned in 2005. In general, taxpayers benefit from continued or expanded deductions and credits in these areas:

Energy efficiency, at home and on the road—Hybrid and other clean-fuel vehicles still carry a deduction of up to $2,000, but watch for the possibility of even better credits in 2006. Also, new tax credits for energy-efficiency improvements to your home have been sweetened for 2006 and 2007. So 2006 might be a good year to rev up the green

Charitable giving for Hurricane Katrina victims—Givers get several opportunities to deduct a bigger chunk of their charitable gifts or get credit for their volunteer work.

Retirement savings credit—This tax credit allows some taxpayers to lower their taxes up to $1,000 for contributions to a retirement savings plan. It has one more year to go. Be sure to see if you qualify.

The Hurricane Katrina Tax Relief Act of 2005 and the Gulf Opportunity Zone Act of 2005 provide special help for victims of Hurricanes Katrina, Rita, and Wilma:

The 10 percent tax penalty on early withdrawal of qualified retirement plans like IRAs will be waived for the 2005 tax year.

Some taxpayers will be able to use their 2004 income, if greater than their 2005 income, to calculate earned income and child tax credits on their 2005 returns.

If a hurricane victim—or any other taxpayer for that matter—needs more time to file their return they will be able to request an automatic, six-month filing extension on most types of returns without a signature or a reason. Payment of any tax owed, however, still must meet the April 15 deadline.

Cars for charity stall in value. Taxpayers who gave an old car to a charity in 2005 and want to claim the market value of that car will be out of luck. A new rule generally limits that deduction to the amount the charity receives when that old vehicle is sold. So an old car with a market value of $1,000 that the charity can only sell for $500 is only worth a $500 charitable deduction for the giver.

My taxes are still ahead of me as I haven't received all of my reports for 2005. If you'd like to know more about how to make the most of your 2005 tax filing, visit these links: