Taxpayers only have two weeks left to make their final financial moves for the 2005 tax year. Before making any moves, or beginning to prepare their 2005 tax returns, taxpayers will want to review the tax law changes featured on the IRS web site at www.irs.gov.
Among the moves that can still be made are:
- Under the Katrina Emergency Tax Relief Act of 2005, taxpayers can deduct cash contributions made to qualified charities, up to 100 percent of Adjusted Gross Income (AGI), through December 31, 2005.
- The maximum Individual Retirement Account (IRA) contribution for 2005 is $4,000. Taxpayers age 50 or over can contribute up to $4,500 by December 31, 2005.
- Funds in tax-free Flexible Spending Accounts (FSAs) for 2005 can be spent for an additional 2.5 months, into 2006.
- During 2005, taxpayers may gift up to $11,000 per person and exclude the amount from gift tax. Those receiving the gift are not required to pay taxes on it.
There are other items that may reduce taxable income, including out-of-pocket expenses paid by teachers for classroom supplies; closing costs associated with home refinancing, interest paid on school loans; tuition and fee education expenses; and alimony payments.
A statement from the Internal Revenue Service (IRS) suggests that some taxpayers may benefit by itemizing their deductions on Form 1040 Schedule A, if their itemized deductions exceed the standard deductions of $5,000 for single taxpayers and $10,000 for married taxpayers filing jointly. Among the deductions itemized on Schedule A are state and local income taxes, real estate taxes and mortgage interest. Charitable Donations are only deductible on Schedule A and taxpayers should keep a record of their donations. If a vehicle was donated, the IRS draws taxpayer attention to the 2005 law change that generally allows only the gross proceeds of the sale of the vehicle at auction rather than “fair market value”. Certain medical expenses, such as obesity weight loss and stop-smoking programs, may also be deductible.