Work mileage deductions is it worth it? Not necessarily

By: Robert Johnson

In the last part of 2004, the IRS took the simple standard mileage rates and complicated them as only the IRS can do. When you file your 2005 tax return, you are going to find calculating your mileage will depend on when and why you used your vehicle. For the 2005 tax year, mileage was divided into three parts, business, medical and charitable with a special allowance for Katrina mileage. Only the internal revenue service could take something fairly simple and make it a mess.

Business miles

Standard mileage rates for business on your 2005 tax return will largely depend on when you drove. Of course, all the prior rules for business miles still apply you now must divide them up to get the correct mileage for the time period. Below are the standard mileage rates for 2005 tax form:

• January 1, 2005 –August 31, 2005- 40.5 cents per mile

• September 1, 2005- December 31, 2005- 48.5 cents per mile

These amounts apply to business miles if you did not take the MACR’s depreciation deduction, the section 179 deduction, for any vehicle used for hire or for more than four vehicles in service at the same time.

Medical Mileage

If you will be filing on medical mileage on your 2005 tax return, you will have to get out your paperwork and determine when you drove how far on it as well:

• January 1, 2005- August 31, 2005- 15 cents per mile

• September 1, 2005- December 31, 2005- 22 cents per mile

Charity

Here is where the standard mileage rate gets really confusing. On your 2005 return, you can deduct miles driven for charitable activity at three different rates:

• January 1, 2005 – August 24, 2005- 14 cents per mile

• August 25, 2005- August 31, 2005- 29 cents per mile (Katrina)

• September 1, 2005- December 31, 2005- 34 cents per mile (Katrina)

As you can see by the tables above filing, a prior year’s tax return if it includes 2005 can be a nightmare in mileage deductions. So if you are filing a late 2005 return, you need to be aware of all these changes and how they may affect your deductions.

WARNING - Don’t donate your car until you read this

By: Robert Johnson

There was a tremendous buzz in the nation about the new car donation tax law that went into effect on January 1, 2005. This newest tax law will not affect any prior tax return, but will affect your 2005 tax deductions. While many community leaders say that the donations of automobiles, airplanes and boats will still benefit charities greatly, there are some huge changes in store for the taxpayers that once could look for some big write offs on their tax returns. The changes affect anyone who plans to check a “donate car 2005” block on a deduction form.

Now taxpayers are no longer able to estimate the fair market value of their donated vehicles for tax write-offs of more than$500 on any 2005 tax return. Except for a few yet to be clarified exceptions to the rules, any deductions over $500 on a 2005 tax form will be capped at the price obtained when the charity sells your car, aircraft or boat.

They will send you a written notification of that sales price that you can use for your deduction on your 2005 taxes. If you are hoping to have some huge deductions for charities on your 2005 tax online return, you will need to hope that the vehicle you donated brings a good price at auction. Even if you are filling out a late 2005 tax return, the rules regarding donations will remain in effect.

Many charities were realizing some amazing money from donated vehicles that they could sell for profit. They have been worried that this source of funds could take a dangerous fall when people realize that this deduction may not give them a large 2005 tax refund. Experts do not believe they have much to concern themselves about.

One of the reasons given for taxpayers donating these vehicles is that they need a convenient and quick way to rid themselves of autos, planes and boats that they no longer want or need. In most of these cases, the age or mileage of the cars would keep the owners from realizing top dollar at any rate. Donors that choose to give these items also do this from a true altruistic nature and they enjoy the feeling that they get from helping out others.

Finally, a child is a child, is a child in 2005

By: Robert Johnson

Beginning with your 2005 tax return there is now a proper and true definition of a qualifying child. This enables taxpayers to be able to claim child exemptions and credits properly. The definition of child for tax purposes will now include 4 criteria that must be met to enable the taxpayer to take any child related credits or deductions. There is even series of tiebreaker situations that will ensure that all taxpayers are able to distinguish which of their dependents can qualify as a child if they are filling out a 2005 tax form.

A qualifying child can be used as a deduction whether you fill out a 2005 tax online or file a standard 2005 tax form. Prior to the 2005 tax ruling, it was sometimes difficult to establish a proper qualifying status for some dependents in the household. This new ruling will not change any dependent status on a prior tax return.

If you are filing 2005 taxes and are looking for deductions, it may benefit you to look carefully at what the definition of a qualified child is now defined as being in regard to tax rulings. Should there be any questions, you can always seek the assistance of qualified tax preparers so that you do not hesitate on your tax filing and send in a late 2005 tax return.

A qualifying child for tax purposes will meet the following requirements:

• Relationships — the person must be the child, stepchild, adopted child, foster child, or minor brother /sister of the taxpayer; or a related descendant through one of these relationships.

• Residences — the person must also have the same established, physical residence as the taxpayer. The person must have lived there over one-half of the year for which the taxes are filed.

• Ages — the person should be under 19 years of age at the end of the tax year if they are not a full time student. If they are a full time student for at least 5 months of the year, or are permanently and totally disabled the age limit is increased to 24 years of age.

• Support — the person must not have been provided over 50% of their own support during the year.

• Tie-Breaker Tests If the child deduction is being claimed by more than one person it is given to the taxpayer who is

• The parent of the child

• The person that the child lived with the longest time during the year… If the time of residence is split equally between two or more people, the deduction is given to the person with the highest AGI.

• The person with the highest AGI, if there is no parent involved.

Is there any penalty for filing late my 2005 tax return?

There are Penalties for paying 2005 taxes late

By: Robert Johnson

Any taxpayer who has a late 2005 tax return will be subject to penalties and interest charges. Even if you have paid taxes and are expecting a 2005 tax refund, you will be in danger of being penalized for filing your tax return late. This could even trigger an automatic request to audit any prior tax return as well. When someone misses the deadline to file, late penalties can immediately be assessed and what some don’t realize is that these interest charges alone are compounded daily. This makes high rates of interest on credit cards a walk in the park compared to how furiously the interest accrues on a taxpayer who is paying their 2005 taxes late.

Computers are designed to pick up any late payment of employment taxes and this will begin an avalanche of penalties and interest charges to the taxpayer. Even if you attempt to file your 2005 tax online and it is late it will trigger the interest of the IRS, it will not slip quietly into the system. There are even some taxpayers who will deliberately not file a 2005 tax return because they assume that their income is so small that it will not be noticed by the IRS. What this does is create a disaster, because there will be an accounting down the road, and if the IRS feels that the oversight was deliberate they can consider it as an attempt to defraud and the penalties are huge.

If you are one of the many taxpayers who has yet to file a 2005 tax return, you should take immediate action to rectify the situation. You can get assistance from a qualified tax preparer and preferably, they should be one who is certified to represent you before the IRS. They can help you fill out a correct 2005 tax form. Even if you owe money and cannot pay it, filing the form will help you slow the charges that are mounting from penalties and interest charges.

Penalties for filing a late 2005 tax return

If you owe taxes and do not file your return on schedule, you are charged about 4.5% of the tax owed for each month that it is late in addition to the taxes due. If you are over 60 days late with the filing the minimum penalty is $100 or 100 percent of the tax owed (whichever of these is the smallest will be what you pay). Should you file on time but do not pay the taxes due, you will have a penalty of a half percent of the entire tax charged each month that the taxes are unpaid, and this penalty maxes out at 25% of the total tax due. The overall interest charges are computed at the federal interest rate (short-term) with an additional 3% added. This is the interest that is compounded daily, every single day that the taxes are late. The reasons for the late payment are not a consideration in assessing this charge. Help for Taxpayers A qualified tax preparer or a tax attorney can help you find your best way out of the penalty and interest nightmare if you have filings that are late. They may even be able to arrange a settlement that can save you a large percentage of the charges. If you do not take steps to correct the late filing of 2005 tax return, the situation will only worsen as each day passes.