January 03, 2006
Tuesday PM

WASHINGTON - The Internal Revenue Service is banking on breaking last tax season's record that saw more than half the nation's 135 million taxpayers file electronically with electronic deposit of tax refunds likely to be the next goal.

In announcing that the agency this week will send out 17.7 million tax packages to people who previously filed paper returns, IRS Commissioner Mark Everson said he expects the electronic filing program known as e-file "will continue to grow this year."

He added that taxpayers who use IRS e-file and have tax returns deposited directly to their bank accounts typically get their tax refunds in two weeks tops, less than half the time required to process paper returns.

However, a new survey commissioned by the U.S. Treasury, the IRS' parent, finds that, unlike taxpayers 65 and older, the nation's 76 million baby boomers who just started turning 60 are skittish about using direct deposit, not only for tax refunds and other government checks, but for paychecks as well.

It costs Uncle Sam 83 cents to produce, mail and process a paper check, about 75 cents more than what it costs for direct deposit. Dick Gregg, commissioner of Treasury's financial management service that commissioned the study, warned that "the sheer size of the baby-boomer population, coupled with impending postage increases, will drive up the government's cost to issue paper checks exponentially."

To help meet Congress' mandate that 80 percent of taxpayers file their returns electronically by 2007, the IRS has consolidated online service for individual taxpayers and tax professionals who help them out at a one-stop online 1040 Central page on a revamped www.irs.gov Web site.

The IRS Web site also is the gateway to the Free File Alliance of online tax preparers. Now in its fourth year, these private companies offer proprietary tax-preparation software for free to e-filers who earned $50,000 or less last year under a new arrangement between the government and these firms.

The "After You File" section of the IRS Web site also contains the "Where's My Refund?" feature to let you track your refund as it's processed.

Taxpayers will have until April 17 this year to file their 2005 taxes because April 15 falls on a Saturday in 2006, and taxpayers in Maine, Maryland, Massachusetts, New Hampshire, New York, Vermont and the District of Columbia get until April 18 because the IRS center that processes the returns for those jurisdictions will be closed for a Massachusetts state holiday.

Other changes for your 2005 taxes include:

- An automatic six-month filing extension, although the extension doesn't extend the April date when tax payments are due. Previously, individual taxpayers could only get a four-month automatic extension, with an extra two months dependent on convincing the IRS you had a good excuse. See IRS Form 4868 for additional details.

- Charitable contributions that were made between Aug. 27 and Dec. 31, 2005, are exempt from income-based limits that normally apply. The change, adopted in the wake of Hurricane Katrina, applies to all contributions by cash, check or credit card, not only hurricane relief.

- Charitable donations of cars, boats and aircraft face tough new rules for 2005 if you claim a value of more than $500. You'll need an IRS Form 1098-C or other written acknowledgement of the donation to attach to your tax return that includes the gross proceeds of the sale, the Vehicle Identification Number, and a statement certifying the vehicle was sold in an arm's-length transaction between unrelated parties. The documentation must be provided 30 days after the date of sale, or Oct. 1, 2005, whichever is later.

- Higher contribution limits for 2005 apply for Individual Retirement Accounts, one of the few ways you can still save on your 2005 taxes. IRA deposits for 2005 made by the April tax deadline are capped at $4,000 for individuals, plus $500 more for taxpayers 50 and older. IRA contribution limits for 2006 are $4,000, plus another $1,000 catch-up for the 50-and-over crowd.

Deferral limits for 401(k)-style retirement savings plans also rise for 2006, up from $14,000 in 2005 to $15,000 for individual workers. Employees 50 and older, who faced an $18,000 deferral cap in 2005, can divert $20,000 this year.

- The one-two punch that Hurricanes Katrina and Rita dealt to Gulf oil production prompted the IRS to raise the standard mileage rate from Sept. 1 to Dec. 31, 2005. For business use of a vehicle, the rate is 40.5 cents a mile from Jan. 1 through Aug. 31 and 48.5 cents a mile for the rest of the year. Standard mileage for charity driving is set by Congress at 14 cents a mile and wasn't changed for the 2005 tax year.

Special relief is available for victims of Hurricanes Katrina, Rita and Wilma. The www.irs.gov Web site has a special section to help them and there is a toll-free telephone number - 1-866-562-5227 - touted as one stop to answer their needs. Those who haven't been able to secure help may also call the IRS Taxpayer Advocate Service at 1-877-777-4778.

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