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Few new tax provisions take effect this year
Cox News Service
February 13, 2005
Here's the trade-off for ordinary taxpayers as they sit down to figure out the size of their 2004 tax bills:
There won't be dramatic cuts in what they owe. On the other hand, there are not a lot of new provisions and paragraphs, explanations and exceptions to try to figure out.
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"Most folks won't see a whole lot of changes, and that's good," said Roy D. Burke, a certified public accountant in Atlanta. "For most taxpayers, change creates a lot of confusion."
Yes, two big new tax cut bills were passed by Congress and signed by President Bush last year. But most of the provisions for individuals and families had the effect of keeping alive breaks that might have lapsed.
And many more provisions will help out corporations, special interests and very narrow classes of taxpayers. There are sweet deals for professional golfers, for example, and for Alaskan whaleboat captains who do certain good works, Hollywood filmmakers and cruise ship companies, among many others.
For rank-and-file taxpayers, one pleasant result may be the chance to file earlier than usual. The deadline is April 15.
"For 2003, most of my clients gave me their information very late," Burke said. "This year they're coming in a lot earlier." The reason: They're not as confused about what they need to do.
Early filing is especially attractive, and sensible, for the millions of Americans who expect to get a refund. Three out of four American taxpayers got refunds last year, averaging $2,100 apiece. In Georgia, 2.8 million taxpayers got refunds.
A growing trend this year is electronic filing. The IRS expects half of 133 million taxpayers will file their returns electronically, said IRS spokesman Eric Erickson.
That's better than last year, when nearly 47 percent went to computers to fill out and send in their returns.
Interestingly, Georgia was ahead of the game: 56 percent of us e-filed during 2004.
The IRS for years has been hunting for ways to nudge more people into using computers. The government can process computer returns faster — meaning refunds will get back to taxpayers sooner — and chances of process-stopping mistakes are much smaller.
This year, any taxpayer with access to a computer and the Internet will be able to prepare and file federal returns with no charge at all.
Under the government's Free File program, several commercial software providers are giving away their services. They grumbled a bit but did what the IRS wanted.
Go to www.irs.gov to take advantage. If you go directly to the company's Web site, you may not get the freebie. And note that there may be a charge for preparing your state tax return.
But "free" and "easy" will not be the magic words for everyone. Even if more people get to use the short-cut 1040EZ and 1040A returns — and they will &151; millions still face the slog through the standard, lengthy 1040.
This year the IRS estimates that figuring out, filling out and filing the 1040 will taken an average of 13 hours and 35 minutes.
The IRS' official kvetch, National Taxpayer Advocate Nina E. Olson, has officially complained to Congress once again about the heartbreak of obeying the tax law.
"Without a doubt, the largest source of compliance burdens for taxpayers and the IRS alike is the overwhelming complexity of the tax code, and without a doubt, the only meaningful way to reduce these compliance burdens is to simplify the tax code enormously," Olson wrote last month in her annual report to Congress.
Upper-income people, and some middle-income families, will have to go through the complex calculations involved in the alternative minimum tax. The AMT is a parallel tax universe, operating under different rules that are designed to make sure that nobody finagles their way out of paying a fair share of income tax.
There are some new items for taxpayers to think about. For a complete list, check out page 11 of the 1040 instruction booklet. You can download a copy from www.irs.gov.
Here's a sampler of new provisions:
• Individual retirement accounts. More people can deduct contributions to traditional IRAs. Income thresholds have been boosted about 12 percent. For married-filing-jointly returns, you can deduct as much at $3,000 per person if adjusted gross income is below $65,000. Check the instruction booklet for details. You still can make a contribution for 2004, up until April 15. Another goody: The maximum contribution for 2005 has been boosted to $4,000, $4,500 if you are 50 or older.
• Health Savings Accounts. Some taxpayers can take a deduction for 2004 contributions. For details, download Form 8889.
• Clean-fuel vehicles. If you bought a qualified hybrid vehicle last year, you can deduct as much as $2,000. Toyota, Honda Motor Co. and Ford produce such vehicles.
• State sales taxes. The numbers won't work for very many Georgians, but you can choose whether to deduct state and local income taxes, or state and local sales taxes. This break counts mainly for states with no income tax at all. They are Florida, Nevada, South Dakota, Texas, Washington and Wyoming.
• Tax shelters. Stay away from abusive tax shelters. Abusive generally means too-good-to-be-true. The IRS is a lot more serious about this, and penalties have increased.
• Teachers' expenses. Teachers and other educators had been able to deduct up to $250 a year for school supplies they bought themselves. The provision had expired, but it has been brought back to life for this year and next.
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