Tax laws change around year end just in time to take advantage of year end planning. This year is no exception. Congress has been busy making new laws that may affect your tax bill when you file your tax return in 2006. Some taxpayers will benefit from these new laws. Inflation adjustments for personal exemptions have increased, as well as standard itemized deductions, tax bracket adjustments, and annual gift tax exemption. One of the most favorable law changes affecting most taxpayers is the new automatic extension for taxpayers who cannot file their tax returns by the April 15th deadline. The new law became effective in November, 2005 for returns filed in 2006. Prior law gave the taxpayer an automatic extension of four months after the April 15th deadline or August 15th. If the taxpayer needed more time to file after August 15th, they could file for another extension but needed a good reason. The IRS also had to accept that reason and grant the second extension. The new law does away with the second extension and allows an automatic six month extension or until October 15th. The new automatic six month extension does not require a reason to extend. As always, the extension is for additional time to fill. All taxes owed at the time of extension should be paid. Laws that affect the victims of hurricane Katrina have dominated this year. The IRS was set up to handle registration calls of victims of Katrina for FEMA. If anyone had to call the IRS this past summer and fall, they meet with long hold times and overworked IRS agents. There are a number of tax law provisions that have been enacted to help the victims of Katrina get back to a normal life. If these people had retirement plans, laws were relaxed to help them obtain loans from the retirement plans. Deadlines to file and pay taxes were set to February 28, 2006 for victims of Katrina. Anyone that has been affected by either hurricane Katrina, Rita or Wilma are urged to seek help from the IRS or other organizations who have aligned themselves with the IRS volunteering time to give them free assistance with their tax questions. Taxpayers who use their personal vehicle for work either as an employee or in their own business and use the standard mileage rate will receive tax benefits from the increase of the standard mileage rate due to increased fuel prices. The mileage rate for the first eight months of 2005 will be 40.5 cents per business miles and 48.5 cents per business miles driven the last four months of 2005 when gasoline was topping $3.00 a gallon during the hurricane season. Starting in January 2006, the optional standard mileage rate will be 44.5 cents per business mile driven. Medical mileage was also adjusted. Charitable miles remained at 14 cents a mile driven except for mileage in connection with Katrina hurricane relief efforts. The IRS has announced the Free Filing Alliance. This is an alliance with private companies who offer free tax filing for certain taxpayers who meet the eligibility requirements to e-file at no cost to them. This must be done through the IRS website and the Free Filing Alliance at the IRS website. For additional information on eligibility, check at the IRS website, www.irs.gov. |
