New Tax Laws for 2006
By Rafique S.M. Ahmed
progress report of the Internal Revenue Service for the
fiscal year ended September 30, 2005 was recently released
by the IRS Commissioner Mark W. Everson, who seems destined
to work towards three goals: better serving the taxpayers,
continuing modernization, and enhancing enforcement activities
during his first five-year term.
According to Commissioner Everson, the following analysis
shows great improvement by the IRS over the last year:
• Enforcement revenues - the funds received from collection,
examination and document matching activities- are up by
10 percent to a record $47.3 billion over the last year.
• Individual tax return audits increased by 20 percent
to 1.2 million in 2005.
• Audits of individuals with incomes over $100,000
also surpassed 221,000 - the highest figure in 10 years.
• Audits of small business corporations more than
doubled from 7,294 in 2004 to 17,867 in 2005.
• Audits of larger corporations with assets over $10
million increased by 14 percent to 10,878.
Tax laws for tax year 2005 have changed. The following are
important changes that may affect your 2005 tax returns:
• You no longer can use Telefile to file your tax
returns. There are other IRS options available to file your
tax returns electronically.
• A new uniform definition of a qualifying child applies
for each of the following tax benefits:
Head of household filing status
Child and dependent care credit
Child tax credit
Earned income credit
• The maximum amount of elective deferrals under a
salary reduction agreement that could be contributed to
a qualified plan increased to $14,000.
• For SIMPLE plans, the amount increased to $10,000.
(Age 50 or older $4,500)
• The amount you and your spouse if filing jointly,
may be able to deduct as an IRA contribution increased to
$4,000. (Age 50or older $4,500).
• The maximum amount of income you can earn and still
get EIC increased. The amount depends on your filing status
and number of children. The maximum amount of investment
income you can have and still be eligible for EIC has increased
• The standard mileage rate for the cost of operating
your car increased to 40.5 cents a mile for all business
miles driven before September 1, 2005. For business miles
driven after August 31, 2005, the rate increased to 48.5
cents a mile.
• The standard mileage rate allowed for use of your
car for medical reasons increased to 15 cents per mile driven
before September 1, 2005, and to 22 cents per mile driven
after August 31, 2005. Same rates apply for moving expenses.
• Deduction for each personal exemption has been increased
to $3,200 and is subject to phase out if you have high income.
• Some of your itemized deductions may be limited
if your adjusted gross income is greater than $145,950 for
married filing jointly. ($72, 975 if married filing separately).
• The adoption credit and the maximum exclusion from
income of benefits under an employer’s adoption assistance
program have been increased to $10,630.
• The maximum wages subject to social security tax
@6.2% increased to $90,000. All wages are subject to Medicare
tax @ 1.45%.
• If you donate a vehicle (including a boat or aircraft)
to a qualified charitable organization after December 31,
2004, your deduction is limited to the gross proceeds from
its sale by the organization. This rule applies if the claimed
value of the donated vehicle is more than $500.
• You can now use Form 4868, Application for automatic
extension of time to file US individual income tax return
to obtain an automatic 6-month extension of time to file
your tax return. Four-month automatic extensions have been
• Forms and publications are available online, or
by calling 1-800-tax-form (1-800-829-3676). The IRS Tax
Fax offers forms and instructions by return fax. You need
to call 703-368-9694 from a fax machine. You can also call
the writer’s office at (909) 599-1412 for assistance.