• Standard Deduction
• Standard Deduction Marriage Penalty
• Kiddie Tax
• Earned Income Credit
• Dependent Care Credit
• Child Tax Credit
• Health Insurance Premium Deduction
• Capital Gain Tax Rate
• Dividends Taxed at Capital Gain Rate
• Foreign Earned Income Exclusion
• Standard Mileage Rate
• 2005 Maximum Retirement Plan Contributions
• Donations of Vehicle
• HOPE Credit
• Lifetime Learning Credit
• Above the Line Deductions for Higher Education Expenses
• Coverdell Eduaction Savings Accounts (ESA)
• Student Loan Interest Deduction
• Section 529 Plans Under Federal Regulations
• NY State College Choice Tuition Savings Program

Highlights of 2005 Tax Changes

Standard Deduction

Standard Deduction Marriage Penalty Relief

The Working Families Tax Relief Act of 2004 extended the marriage tax penalty relief for many taxpayers. Through 2010, the basic standard deduction for joint returns is twice the single standard deduction .
In addition, the married filing jointly 10% and 15% rate brackets will be twice the 10% and 15% rate brackets for single filers. This extension partially alleviates the marriage penalty but does not eliminate it.

Kiddie Tax

For 2005, the amount used to reduce the net unearned income reported on the child's return that is subject to the "kiddie tax", is $800. ($850 for 2006) This amount is the same as the $800 standard deduction amount.

Income greater than $1,600. Taxed at parent's highest bracket until the child reaches age 14.

Earned Income Credit

The maximum amount of income you can earn and still get the credit has increased. You may be able to take the credit if:

• You have more than one qualifying child and you earned less than $34,458 ($36,458 if married filing jointly),
• You have one qualifying child and you earned less than $30,338 ($32,338 if married filing jointly), or
• You do not have a qualifying child and you earned less than $11,490 ($13,490 if married filing jointly)
  In 2005, taxpayer(s) may receive maximum credit for:
• $4,400 if 2 or more qualifying children
• $2,662 if one qualifying children
• $399 if no qualifying child
  Investment income limit = $2,700

Dependent Care Credit

• The maximum amount of eligible employment-related expenses is $3,000, if there is one qualifying individual ($6,000, if there are two or more qualifying individuals) and the maximum credit is 35%.
• The phase-down of the credit begins as income rises to a maximum credit percentage of 20% after income exceeds $43,000.
• The qualified dependent must be under the age of 13, or of a dependent or spouse who is physically or mentally incapable of self-care

Child Tax Credit

The Working Families Tax Relief Act of 2004 established a maximum child tax credit of $1,000 per qualifying child for 2005 to 2010.

In addition, this act increased the refundability of the child credit to 15% of the taxpayer’s earned income in excess of $11,000 for 2005.

Health Insurance Premium Deduction

The deduction for health insurance premiums for self-employed individuals has been increased to 100% but it cannot be greater than the taxpayer’s net earnings from his business.

Capital Gain Tax Rate

• For sales after May 5, 2003, long-term capital gain rates are reduced to 5% for taxpayers in the 10% & 15% tax brackets, and 15% for taxpayers in the 25% and above tax brackets.
• Short-term capital gains are taxed at your marginal rate.
• The 8% and 18% qualified 5-year gain tax rates are eliminated.