First Monday for March
Changes in Federal Tax Law Offers Some Opportunity for Savings
Federal income tax laws make it possible to recover some of the cost of planning for the years beyond retirement, University of Kentucky accountancy professor Tom Pope says.
“Taxpayers shouldn’t forget to deduct their premiums for long-term care insurance as a medical expense,” said Pope, an expert in federal and state taxes.
Pope cautioned that the deductions are limited, based on a taxpayer’s age.
“If you’re between 40 and 50, the maximum deduction is $510. People who are between 50 and 60 can deduct $1,020, while people between 60 and 70 can deduct up to $2,720,” he said.
He noted that some businesses permit employees to defer the premiums for health and long-term care insurance. “Anything that’s tax-deferred can’t be deducted when you prepare your tax returns,” Pope said.
He noted taxpayers who have made major purchases during 2005 may want to evaluate a choice federal law offers.
“If you bought a car or a boat, or both, last year, you might want to consider deducting the state and local sales taxes you paid in 2005 instead of deducting your state and local income taxes,” Pope said. “You may have spent more on sales taxes.”
Federal law continues to permit homeowners to escape taxes on the sale of their residences. If the home was the principal residence for two of the last five years, the law excludes up to $250,000 of any gain from taxation.
And for the next few years – at least through 2009 – Americans won’t have to pay estate taxes until the estate’s value exceeds a certain amount. For 2005, the value was $1.5 million. Next year, the cutoff rises to $2 million.
“The estate tax limit has a sunset clause in 2010 that makes estates subject to taxes at 2001’s tax rates. Congress still has another three to four years to address the issue of whether to make the reduction in estate taxes permanent,” Pope said.
Kentucky taxpayers have enjoyed a similar reduction in their tax burden, Pope noted.
“At one time, we had the second-largest inheritance tax in the country. Today, if you leave your estate to your spouse or your children, you basically have no inheritance tax,” he said.
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