Tax Tips: Helpful Hints for Your 2005 Taxes
Making Sense of the Tax Code Can Help You Save Money
Hybrid Tax Breaks If you bought a gasoline/electric hybrid car in 2004, you'll get a tax break in addition to your gas savings. The special deduction for buying a hybrid was scheduled to drop from $2,000 to $1,500 in 2004, but Congress had a change of mind and restored the $2,000 write-off. And you get this tax break even if you don't itemize deductions. Unfortunately, the IRS still hasn't found room on the 1040 form to give this deduction its own line -- you can claim your hybrid tax savings on line 35 of the 1040 form.
Health Savings Accounts A new law created health savings accounts that allow you to open a tax-free savings account if you buy a medical policy with a $1,000 deductible. Because that deductible is so high, the premiums are lower. Money put into that savings account can be deducted on your tax return -- up to a maximum of $2,600 if you are single, or $5,150 if you have family coverage. Money in the account grows, tax-free, and withdrawals are tax-free as long as the cash is used to pay medical bills. You can deduct whatever money you put into your health savings account by claiming the write-off on line 28 of your 1040 form.
The 'Angel of Death' Tax Break Did you sell property last year that you inherited from someone? What about stocks or bonds? If so, you may qualify for a tax break that saves taxpayers billions of dollars every year. When someone dies, the tax on the profit that has built up on investments he or she owned usually disappears. So if your dad bought a stock worth $50,000 and it grew to $100,000 by the time he left it to you, the tax on the $50,000 profit is wiped out. If the stock earns another $1,000 under your ownership, you pay tax only on that $1,000. This also works if you owned property jointly with someone -- if spouses jointly own property, the tax on at least half the profit is forgiven in the event of one spouse's death, and in some states the whole tax is forgiven.
Filing for Kids Filing your child's first tax return has nothing to do with age, but rather income. Children who have bank or mutual fund accounts in their own names must file tax returns. And any job that paid more than $4,850 requires a tax return. If your child had a part-time job and additional investment income, the threshold is lower -- generally, earnings of $250 in investments plus any work income means the child has to file.
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