Tax Update !

Automatic Six-Month Extension Available for Taxpayers * *

Beginning January 1, 2006, most individuals and businesses will be able to request a full six-month tax-filing extension without a reason or even a signature. Individuals will be able to file Form 4868 to get an automatic six-month extension of time to file, beginning with 2005 returns due in 2006. This will replace the existing procedure that only allowed an automatic extension of four months. Form 2688 has been eliminated.

Extension procedures will also be streamlined for business taxpayers, thus eliminating Forms 8736 and 8800. The new regulations will make a six-month extension available to most noncorporate business taxpayers, including partnerships and trusts. Starting January 1, 2006 all eligible business taxpayers will use Form 7004 to request an automatic six-month extension of time to file.

* * IRS Certifies Ford and Mercury Hybrid Vehicles for Clean-Fuel Deduction * *

The model year 2006 Ford Escape Hybrid and the 2006 Mercury Mariner Hybrid vehicles have been certified by the IRS as being eligible for the clean-burning fuel deduction under Section 179A. An individual who purchases one of these vehicles new during calendar year 2005 may claim a tax deduction of up to $2,000 for tax year 2005. This is a one-time deduction that must be taken in the year the vehicle is originally used.

The qualified clean-fuel vehicle deduction applies to property acquired for use by the taxpayer and the original use of the property must begin with the taxpayer. The deduction terminates for property placed in service after December 31, 2005. However, a credit for energy-efficient motor vehicles, the alternative motor vehicle credit, becomes effective for qualifying vehicles placed in * Relief for Hurricane Rita Victims * *

The Internal Revenue Service issued IR-2005-110 outlining relief for taxpayers affected by Hurricane Rita. The President issued major disaster declarations covering Texas and Louisiana effective September 23, 2005. Deadlines for affected taxpayers to file returns, pay taxes, and perform other time-sensitive acts have been postponed to February 28, 2006, the same extended date that Congress granted to taxpayers affected by Hurricane Katrina.

The tax relief will be automatic in those counties designated by the Federal Emergency Management Agency (FEMA) as “individual assistance areas.” Taxpayers won’t need to do anything to get the extensions and other relief available.

Under new IRC t he new four-month rate for computing deductible medical or moving expenses will be 22cents a mile, up from 15 cents for the first eight months of 2005. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.

WASHINGTON – The Internal Revenue Service and Treasury Department announced today an increase to the optional standard mileage rates for the final four months of 2005.

The rate will increase to 48.5 cents a mile for all business miles driven between Sept. 1 and Dec. 31, 2005. This is an increase of 8 cents from the 40.5 cent rate in effect for the first eight months of 2005, as set forth in Rev. Proc. 2004-64.

Exemptions reduce your taxable income. Generally, you can deduct $3,200 for each exemption you claim in 2005.

Exemption for individual displaced by Hurricane Katrina.   You may be able to claim a $500 exemption if you provided housing to a person displaced by Hurricane Katrina

Child tax credit.   You may be entitled up to $ 1000.00 credit for each qualifying child who was under age 17 at the end of the year.

Phaseout of Exemptions

The amount you can claim as a deduction for exemptions is phased out once your adjusted gross income (AGI) goes above a certain level for your filing status. These levels are as follows:

If you work while collecting benefits, social security works as follows:

• If you are younger than age 65 and 6 months all year, $1 from each $2 you earn above $12,000 will be deducted from your benefits.
• If you turn 65 and 6 months during 2005, $1 from each $3 of earnings above $31,800 will be deducted from your benefits.
• If you are self-employed, count all net earnings income at the time you receive them unless they were earned before becoming eligible for social security, but not paid until a year after eligibility.
• If you are an employee, only your wages count toward social security’s earnings limits at the time they are earned, not when they are paid.

The following common errors draw the attention of the IRS and could delay refunds or, even worse, prompt audits:

1. Math errors. Arithmetic or transferring numbers incorrectly is the most common error taxpayers make on their returns.

2. Forgetting to report some interest and/or dividends.

3. Incorrect tracking of investment basis. This step is often calculated incorrectly, resulting in double taxation on dividends or capital gains that were reinvested into stock.

4. Using the wrong tax tables or tax table amount.

5. Forgetting to include all of the necessary forms.

6. Omitting all social security numbers or submitting incorrect numbers. Double check!

7. Forgetting to sign the necessary signatures in all of the proper places.

8. Making the check out incorrectly or forgetting to sign it. (Checks need to be payable to the United States Treasury, not to the IRS.)

9. Not using the preprinted label or the envelope provided with the return.

10. Missing the deadline to file a return or request an extension.

Common question many taxpayers have is whether they should take the standard deduction or itemize deductions. In general, the standard deduction is more favorable to the taxpayer. The standard deduction for married people are $10,000 if you are a joint filer, $7,300 if you are head of household, and $5,000 if you are single or married filing separately.

You should only itemize deductions if your itemized deductions exceed the above amounts. Itemized deductions include charitable contributions, interest expenses, local and state taxes or sales tax, medical and dental costs, casualty and theft loss, job and investment costs, and educational costs. If you are married filing separately, however, you must itemize deductions if your spouse does so, even if it’s not as favorable.

Effective after August 22, 2005 and before January 1, 2006 your cash donations will not be limited to a percentage of your AGI.