TOP DRAWER ARTICLE

2005 Fourth Quarter Tax Tips
by
HL Carpenter

* Are you keeping track of your automobile mileage? The business mileage reimbursement rate has been increased to forty-eight and one-half cents from September 1 through December 2005. Medical and moving mileage is twenty-two cents.

* If you itemize deductions on your federal income tax return, be aware the state sales tax deduction is scheduled to disappear after December 2005. You may want to push some purchases into this tax year to maximize your benefit.

* The Energy Policy Act of 2005 signed by the president in August includes credits – which directly reduce your tax liability – for energy saving home improvements. Among other items, certain types of air conditioning units or furnaces qualify. Shop around and be ready to make your purchases in 2006 when these credits go into effect.

* The same law ends the current deduction for certain hybrid autos in December 2005. The deduction is replaced by credits in 2006. Since credits are typically more valuable than deductions, waiting until January to buy a qualifying new car could save tax dollars.

* If you’re retired and in a low tax bracket, but planning on taking a lot of money out of your IRA, divide the dollar amount between December 2005 and January 2006. The split may keep you in a lower tax bracket.

* Working hard and want more cash in your pocket? You can adjust the amount of federal income tax being withheld to reflect your correct allowances before year end. Instead of a big refund in April, make use of your money now.

Originally published September 2005.

Last update: January 8, 2011