SpringfieldNewsSun.com

Keep an eye on tax changes this year

Tax returns for 2005 have new rules on donations, retirement savings and more

New rules for donating that old car, tax breaks for hurricane victims and people who helped them, and bigger incentives to save for retirement are among changes Americans will see this tax-filing season.

Other new wrinkles: High gasoline prices lifted the standard mileage rate allowed for business use of vehicles. And a new definition of "qualifying child" affects tax benefits for certain filers.

More tax tips: •  Keep an eye on tax changes this year •  Volunteers are ready to help seniors with tax returns •  Filing from home is easier than ever •  Check all data entry carefully •  Phishing, other scams, abound at tax time •  Online feature makes it easy to track refunds •  Tax breaks for saving energy start this year

Congress added several temporary tax breaks for victims of devastating hurricanes Katrina, Wilma and Rita. Some highlights:

• Suspension of limits on writing off personal casualty losses; normally, such losses must be reduced by a $100 deductible and by 10 percent of the taxpayer's adjusted gross income.

• The option to use 2004 income to figure the 2005 earned income credit and refundable child tax credit; for many hurricane victims, this will result in those credits being larger.

• Waiver of 10 percent penalty for early withdrawals from individual retirement accounts and other qualified 401(k)s for people whose principal residence was in the disaster area.

Tax breaks for people who helped victims include:

• An increase in mileage deduction for vehicles used in volunteer work to help hurricane victims (29 cents a mile for vehicles used between Aug. 25-31, 34 cents a mile from Sept. 1-Dec. 31).

• An additional $500 exemption ($2,000 household maximum) for taxpayers who housed hurricane victims for 60 continuous days.

• An increased deduction for cash contributions to qualified charities — from 50 percent to 100 percent of adjusted gross income for donations made between Aug. 28 and Jan. 1. The money didn't have to be earmarked for hurricane aid.

Other changes for 2006 include new restrictions for charitable deductions of cars worth more than $500, a deduction long abused. Many taxpayers claimed the fair market value of the car based on used-car value guides, even if the car was a non-running junker.

Now, taxpayers can't deduct more than the charity collected by selling the vehicle.

There's also a new uniform definition for "qualifying child," which is used for the dependency exemption, head-of-household filing status, earned income tax credit for lower- and moderate-income working individuals and families, child tax credit, and credit for child and dependent care expenses.

Ceilings for tax-deferred contributions to traditional IRAs have risen from $3,000 to $4,000 for most savers and from $3,500 to $4,500 for those age 50 and older, within certain income restrictions. Ceilings on Roth IRA contributions also increased.