/ Source: The Associated Press
Some changes in income tax rules for your 2004 returns:
- Taxpayers who itemize their deductions can deduct either income or sales taxes paid to state and local government. General sales taxes paid on cars, boats, motorcycles, homes and building material can be added to the amount provided on the optional IRS table.
- Charitable contributions made in January 2005 to organizations helping tsunami victims can be deducted from 2004 tax returns. The exception applies only to cash donations, not goods or equities.
- Low-income taxpayers can claim as much as 15 percent of the child tax credit as a refund. Soldiers can count their tax-free combat pay toward the parents' benefit for the first time.
- Military personnel can opt to include their tax-free combat pay toward the earned income tax credit if it helps them secure a bigger credit.
- The maximum deduction for eligible education expenses increases to $4,000. That's $1,000 more than last year for taxpayers who qualify. Taxpayers can earn more and still qualify for the Hope and Lifetime Learning tax credits that help pay education expenses.
- A deduction for teachers who spend money on classroom materials, once scheduled to disappear, stays in place for 2004 and 2005.
- Full deductions or credits for clean-fuel vehicles can still be claimed in 2004 and 2005. They had been scheduled to start shrinking this year.
- Individuals who qualify for new Health Savings Accounts can deduct contributions made up until April 15, 2005.
- The adoption tax credit increases to $10,390.
New for 2005:
- The contribution limit for employer-sponsored retirement accounts, such as 401(k)s, increases to $14,000. Those older than 50 can set aside $18,000.
- The contribution limit for individual retirement accounts increases to $4,000. Those over 50 can contribute an extra $500.
- Deductions for cars and trucks valued at more than $500 and donated to charity are limited to the amount the charity reaps by selling the vehicle. Taxpayers must get a receipt from the charity certifying the sale.