What’s New for 2005 Returns

Inflation Adjustments

Continued from last week.

Business Deduction for Work Related Education. If you drive your car to and from school and qualify to deduct transportation expenses, the amount you can deduct for miles driven from January 1, 2005, through August 31, 2005, is 40 1/2 cents per mile. The amount you can deduct for miles driven from September 1, 2005, through December 31, 2005, is 48 1/2 cents per mile. This is up from 37 1/2 cents per mile in 2004. If your adjusted gross income for 2005 is more than $145,950 ($72,975 if you are married filing separately), your itemized deductions may be limited.

Excess Withholding of Social Security Tax. Social Security taxes are withheld at a rate of 6.2% of wages. The maximum wages subject to this tax increased to 90,000 in 2005. If you had too much social security or RRTA tax withheld during 2005, you may be entitled to a credit of the excess withholding.

Can’t Pay What You Owe The IRS?

The IRS implemented an additional payment option, on January 17, 2005, known as the Partial Payment Installment Agreement (PPIA) for taxpayers who have outstanding federal tax liabilities. This new payment option became possible with the passage of the American Jobs Creation Act of 2004 signed into law on October 22, 2004. The new legislation includes language amending Internal Revenue Code 6159 to allow the IRS to enter into installment agreements that result in full or partial payment of the tax liability.

Prior to enactment of this legislation, taxpayers that could not fully pay their outstanding tax liabilities could only enter into an agreement with the IRS if it resulted in full payment of the liability.  This left taxpayers unable to meet this criterion with limited payment options. 

Taxpayers who request a PPIA must provide complete and accurate financial information that will be reviewed and verified.  Taxpayers will also be required to address equity in assets that can be utilized to reduce or fully pay the amount of the outstanding liability.

In addition, taxpayers granted PPIAs will be subject to a subsequent financial review every two years. As a result of this review, the amount of the installment payments could increase or the agreement could be terminated, if the taxpayer’s financial condition improves.

This column is offered as a public service with the understanding that each person's tax situation is different; and that you should consult your CPA before taking any action based upon comments made in this article. Call me and I will be happy to explain my “CPA Quality tax preparation at H&R Block Rates”.  I can be reached at 825-2771.