Accounting Aid Society Tax Assistance Program Selected Individual Tax Changes for 2005

Selected Recent Tax Changes Dependency Exemptions (Uniform Definition of a Qualifying Child) Vehicle Donations Michigan Vehicle Donation Credit City of Detroit Changes

Tests applicable to all dependents Dependency Exemptions for Qualifying Children and Qualifying Relatives (2005) Tests applicable to all dependents Dependent of another (a dependent can have no dependents) Joint return test Citizenship or residency test (U.S., Canada, or Mexico)

Dependency Exemption Tests for Qualifying Children Relationship Test – Child, grandchild, brother sister (including stepbrother & stepsister, niece or nephew), foster child placed by agency Residency – Lived with taxpayer more than ½ of the year Age – Under 19, under 24 and a full-time student, or permanently and totally disabled Support – Did not provide more than ½ of his/her own support

Dependency Exemption Tests For Qualifying Relatives (old rules apply) Support Member of Household or Relationship Gross Income

Support Test Taxpayer must provide more than 50% of the dependent’s support An exception to support test requirement: Multiple support agreement

Relationship Test Dependent must be one of the specified relatives of the taxpayer (either taxpayer, if joint return) or be a member of the taxpayer’s household for the entire year Once a relationship is established by marriage, it continues even if there is a change in marital status The relationship cannot be in violation of local law (still an issue in Michigan).

Gross Income Test Dependent’s gross income must be less than the amount allowed for an exemption ($3,200 for 2005)

Related Change to Head of Household Filing Status Under the new rules for 2005 the qualifying person must be your dependent. Previously, your unmarried child did not have to be your dependent.

Rules For Contributions of Motor Vehicles, Boats, and Airplanes (New for 2005) If the claimed value exceeds $500 and the item is sold by the charity, the deduction is limited to the gross proceeds from the sale. If the charity will significantly use or materially improve the item, the deduction will be the fair market value. If the charity sells at a price significantly below fair market value to a needy individual in direct furtherance of the organization’s charitable purpose, the deduction will be the market value. Form 1098-C is used for notification and is to be attached to the tax return.

New State of Michigan Contribution Credit Vehicle Donation (new for 2005) Limitation: smaller of 50% of the donation or $100/$200(MFJ)

City of Detroit Changes Personal exemptions are reduced from $750 to $600. A non-resident taxpayer will be required to submit documentation from their employer to support an allocation of income earned outside the city. New mailing addresses.

TaxWise Changes for 2005

Changes to the look of data entry fields in TaxWise 2005 Active entry displays an expanded entry box Easier to read Quick Link icon appears on any linkable entry Displays the same Entry Links dialog box F9 is still available

Context Sensitive Help can be displayed while preparing a return Will be defaulted to off – but can be used if needed Located on the View Menu or activated by using Alt-F1 Displays field-related Help at the bottom of the workspace

TaxWise Help will be include several IRS Decision Trees Decision trees will be found in both F1 Help and Context Sensitive Help Open in PDF Must have Adobe 6.0 or higher to view (some systems are running 5.0 and may not be able to view decision trees) Decision trees will include Determination of Filing Status Can you claim an exemption for a Dependent Credit for Child and Dependent Care Credit Credit for the Elderly and Disabled Earned Income Credit

TaxWise Refund Monitor Located on the View Menu Show Refund Monitor (√ ) indicates the refund monitor is active Defaults to active Displays above the TaxWise Tree Quick glance at tax information AGI Refund/Balance Due

Estimated Entries Estimated entries are now listed in diagnostics. Estimated entries will show even for forms that are not applicable to the client. Please ignore the estimated entries section of diagnostics. Continue to use the red exclamation points to indicate missing required information.

Sites are now allowed to use the Practitioner PIN Signature documents are not mailed to the IRS processing centers, which reduces year-end administrative duties associated with the burden of Forms 8453. MI-8453 still required for state returns.

New E-Filing Procedures for Practitioner PINs “E-File Only” checkbox will be defaulted on Main Information The Practitioner PIN will be defaulted to “98765” – Do not change the Practitioner PIN The volunteer will ask the client for a five digit PIN and will enter it in a required (red) box The volunteer must also enter the date in a required box Client will sign Form 8879 and Form MI-8453

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