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

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

3. 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)

4. 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

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

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

7. 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).

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

9. 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.

10. 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.

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

12. 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.

13. TaxWise Changes for 2005

14. 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

15. 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

16. 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

17. 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

18. 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.

19. 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.

20. 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

21. Admin Forms