Preparing for Tax Year 2005
Does anyone already care about next year's tax now? I am talking about the tax for the tax year 2005 which will be due in 2006. You must feel I am crazy, but you might want to know the following news because we are talking about real money here.
First thing first, President Bush has just signed the Working Families Tax Relief Act of 2004. People like me have widely expected Congress to extend a number of favorable tax breaks and now they delivered it. For a precise description of what the Act means, go no further than WebCPA. The clauses that affect most people include:
* Child credit. The child credit is increased to $1,000 for taxable years 2005 through 2009.
* Standard deduction marriage penalty relief. The basic standard deduction amount for joint returns is increased to twice the basic standard deduction amount for single returns effective for 2005 through 2008.
* 15 percent rate adjustment. The size of the 15 percent rate bracket for joint returns is increased to twice the size of the corresponding rate bracket for single returns effective for 2005 through 2007.
* Size of 10 percent rate bracket. The size of the 10 percent rate bracket is extended for 2005 through 2010, and is set at the 2003 level ($7,000 for single individuals, $10,000 for heads of households and $14,000 for married individuals) with annual indexing from 2003.
* Increased AMT 2005 exemption. The act extends the increased alternative minimum tax exemption amounts to taxable years beginning in 2005.
Although expected, this is still good news. Without this extension, my family needs to shell out at least $2,000 more every year in federal tax. Personally, I really prefer to make my own decisions about money instead of hoping the government to make the right decisions. (Of course I am against the growing deficit too -- that's another story.)
Secondly, CCH, a reputable tax information and service company, released its projection for year 2005's federal income tax schedule. (It was released before the passage of the tax breaks extension; read the section of "Tax Bracket and Standard Deduction Changes If Pending “Extenders” Legislation Passes" for the most relevant information.) According to Tax Guru-Ker$tetter Letter, "[e]very year, some private sector tax experts ... release their predictions of what those inflation adjustments will be; often months before IRS announces its official figures, which are usually almost exactly the same."
If the projection holds true, I am about to save around $200 assuming my financial status stays the same. A small piece of money anyway, but it is always nice to get some extra money without any investment of time and efforts.
(As you read to this point, here is the bonus: John Wasik at Bloomberg claims that the tax relief passed by the Congress will actually further accelerate state and local tax increases so people may end up paying more taxes. I will let you judge who is right.)
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