Not in 2005
Tax and Financial News
Not in 2005
Qualifying child defined - For purposes of the dependency exemption, qualification as head of household, the earned income credit, the child tax credit and credit for child and dependent care expenses, there is one uniform definition of who is a qualifying child. The child must be your child (including adopted child, stepchild or eligible foster child), brother, sister, stepbrother, stepsister or the descendent of one of these people. The child must live with you for more than one-half of the year and meet the age qualifications for the particular tax benefit.
Charitable contributions of vehicles, boats and aircraft - The new rule that the charitable value of a vehicle, boat or aircraft is limited to the gross proceeds realized in a sale by the charitable organization, went into effect in 2005. There are some exceptions to the general rule. You must also attach an acknowledgement of the donation from the organization to your return.
Exclusion of gain on the sale or trade of small business stock - Code section 1202 allows you to exclude 50% of the gain on the disposition of qualified small business stock held by you for more than 5 years. If the business qualifies as an empowerment zone business, you acquired it after December 21, 2000 and the stock qualifies as an empowerment zone business for substantially all the time you held it, you can exclude 60% of the gain. The gain that is included in income is taxed at 28%.
Self-employment income tax - The maximum self-employment income on which self-employment tax will be levied increased to $90,000 for 2005.
Standard mileage rate - The standard deduction for business mileage increased to 48.5 cents per mile for any business miles driven from September 1, 2005 to December 31, 2005. The rate was 40.5 cents per mile from January 1, 2005 to August 31, 2005. If you used your automobile for charitable purposes related to providing relief to Hurricane Katrina victims, you can deduct 29 cents per mile from August 24, 2005 and before September 1, 2005. The rate increases to 34 cents a mile for the period from September 1, 2005 to December 31, 2005. The standard mileage rate for moving and medical mileage is 15 cents per mile before September 1, 2005 and 22 cents from September 1, 2005 to December 31, 2005.
Inflation adjustment - The personal and dependency deductions and the standard deduction increased for inflation in 2005 over the 2004 amount. Income amounts that determine which tax bracket you are in also increased for inflation.
Limit on contributions - The 50% of income and carryover limits for individuals are suspended for contributions made from August 28, 2005 through December 31, 2005.
Additional standard deduction for housing Katrina evacuees - If you provided housing for Katrina victims, donât overlook the additional $500 per qualifying person exemption you get for 2005 and/or 2006. The total amount of all deductions canât exceed $2,000 in the two year period and you can only take a deduction for a person one time.
Tax benefits for hurricane victims - If you are a victim of Hurricanes Katrina, Rita or Wilma, you may be eligible for additional tax benefits. Give us a call if you think you may have been affected by one or more of those disasters. You or your business may benefit from special provisions enacted at year-end to help you in your recovery effort.
These are just a few of the tax changes affecting you for 2005. As usual, any time the government makes a change in income tax laws, the result is generally an increase in the complexity of the income tax calculation, not a simplification. Confused over the 2005 changes or looking for an explanation of the effect of the law on the future? Give us a call. We can discuss the changes and help you take maximum advantage of the new laws.
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