Sy Accountancy Corporation

704 Mira Monte Place, Pasadena, California 91101

Tel (626) 744-0200, Fax (626) 744-0300, vsy@victorsycpa.com

FEDERAL TAX UPDATE FOR INDIVIDUALS

By Victor Sy, CPA, MBA

1. You are REQUIRED TO FILE an income tax return if your 2005 gross income reaches:

a. Single .................……….. $ 8,200

b. Married filing jointly……. 16,400

c. Married filing separately… 3,200

d. Head of household………. 10,500

Elderly and blind taxpayers add $1,000 to $1,250 to these amounts.

2. PERSONAL EXEMPTIONS are increased to $3,200 for 2005.

3. If your combined actual itemized deductions for interests, taxes, medical and contributions are less than the following amounts, then it is best for you to use the following STANDARD DEDUCTIONS:

a. Single ...................................… $5,000

b. Married filing jointly ............... 10,000

c. Married filing separately .......... 5,000

d. Head of household ................... 7,300

Elderly and blind taxpayers get an extra $1,000 for married and $1,250 for unmarried.

4. Definition of child: Old law used different criteria for defining a child. The new Act provides a uniform definition of a qualifying child for dependency exemption, child credit, earned income credit, dependent care credit, and head of household filing status.

5. Deduction For Sales Tax: The 2004 Jobs Act allows you to deduct either sales tax or the usual state and local income tax, but not both. Whereas prior law did not allow deduction for sales tax, the new law gives you a choice between deducting sales tax or state and local income tax. This makes sense because some states have no (or very low) state income tax.

The IRS will allow you to deduct actual sales tax paid or estimated sales tax from IRS tables plus actual amounts for purchases of automobiles and boats. Sales tax deduction is good only for 2004 and 2005.

6. Stricter Rules For Donated Vehicles: The new law restricts your donation to gross sales proceeds from the eventual sale of your vehicle by charity. The fair market value at the time of donation has become irrelevant. For example, you bought a car in 1994 for $20,000 and plan to donate it in 2005 when its fair market value is $3,000. The charity sells it for $500. You can deduct $500 only, not $3,000. The new provisions do not apply if the charity has significant intervening use or material improvement which, by the way, is rare and theoretical.

7. Social Security Taxes for 2006

O Maximum amount subject to FICA increases from $90,000 to $94,200

O Minimum earnings to be covered by SS increases to $3,880

O Maximum earnings allowed for 65 and under increases to $12,480.