Taxpayers Get Bigger Breaks in 2005

Standard deductions, retirement contributions, credits and cut-offs increase in 2005.

January 10, 2005

Adoption tax credit. The credit can be taken on expenses up to $10,630 -- an increase of $240. The credit phases out for filers with AGIs between $159,450 and $199,450, an increase of $3,950.

Retirement accounts. Contribution levels for 401(k)s, IRAs and self-employed retirement accounts get a boost. In 2005, 401(k), 403(b) and 457 plan participants can contribute $14,000, up from $13,000, and those 50 and older can contribute an extra $4,000 for a grand total of $18,000.

The maximum contribution for traditional and Roth IRAs rises to $4,000 from $3,000, with an additional $500 catch-up contribution for those 50 and older. The maximum contribution level 401(k), Keogh or SEP IRA climbs $1,000 to $42,000. And the cap for SIMPLE IRAs rises to $10,000 -- $12,000 for those 50 and older.

Health savings accounts. The maximum deduction for contributions to a health savings account climbs slightly to $5,250 for family coverage and $2,650 for individual coverage, up from $5,150 and $2,600 respectively. If you're 55 or older, you can write-off an additional $600. You don't have to itemize to get this deduction.

Estate tax. The top estate tax rate drops one percentage point to 47%. Estates worth up to $1.5 million are exempt.

Charitable deductions. If you donate a vehicle to charity in 2005, your write-off will be limited to the price at which the charity sells your car -- not the fair market value.

Changes for small-business owners

Bonus depreciation. The bonus depreciation that let businesses write off 60% of the cost of new equipment the first year disappears in 2005. Also, the supersize first-year depreciation for business automobiles shrinks from $10,610 to $2,960. However, firms can expense more equipment in 2005 -- up to $105,000.

Standard mileage rate. The deductible amount you can claim for each mile you use your car for business rises 3 cents to 40.5 cents a mile. The rate for medical and job-related moving purposes rises to 15 cents a mile.

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