Take closer look at tax changes
Get information and advice on preparing your 2005 income tax returns, including a list of locations where you can get free tax help.
By Susan Tompor
Detroit Free Press
By Susan Tompor
As folks gather up their W-2s and 1099s, it's always good to remember the best tax tip of all: Do not think you can just copy last year's return.
Each year, there are bound to be just a few tax tweaks that can trip you up — or maybe save you some time or money.
Even if you have the same job, the same kids living at home, the same car, the same house, it doesn't mean you're working with the same tax rules.
Here are some new rules to consider:
If you're self-employed or use your car for business, you're going to need to pay attention to an unusual change in the mileage rules on 2005 returns, said Mark Luscombe, a principal tax analyst for CCH Inc. in Riverwoods, Ill.
We're not dealing with just one rate for the entire year. Instead, the mileage rate for business is 40.5 cents a mile for the first part of the year through Aug. 31. But the rate jumps to 48.5 cents..
The reason? There was a spike in prices at the pump, and the mileage rule changed to take that into consideration.
"So that really has helped with the rising cost of gas," said Mary Kline-Cueter, president of the Isis Group PC, a certified public accounting and business advisory firm.
This mileage rate applies only to nonreimbursed business travel.
Taxpayers who use their cars for business have the options of deducting the actual cost of gas and other expenses or they can use the standard mileage rate set by the IRS. Luscombe said many taxpayers use mileage because it can be simpler.
If so, remember that, if you itemize on the 2005 return, you can choose to deduct state and local sales taxes instead of state and local income taxes. This tax break is an either-or deal. So many taxpayers still would want to deduct the state income taxes paid on their federal taxes because state income taxes might offer a fatter deduction. But the sales tax option could be worth considering if you engaged in some super-size spending last year.
An optional IRS table can be found in the 1040 instruction booklet. It lists state-by-state deductions for sales tax, based on your income and exemptions. (You don't have to use the table if you have kept all your receipts.)
If you bought a car, you could use the number in the tables and add on the actual sales tax paid for the car. The add-on works if you bought a car, truck, boat, recreational vehicle, airplane or mobile home or paid sales tax on home building materials.
Another tricky point: The sales-tax deduction was a two-year deal, good only on 2004 and 2005 returns. So, unless Congress extends that tax break, it can't be used on 2006 returns.
Beginning this tax season, taxpayers can file one Form 4868 and get an automatic six-month extension for the 2005 return. You'd automatically have until Oct. 16 to file your completed tax return. (Oct. 15 is a Sunday.)