Jarrard, Nowell & Russell’s Will Russell appeared on the ABCNews4 (WCIV) evening newcasts at 6:00 and 7:00 p.m. Friday, December 16. In the 6:00 broadcast, Russell informed viewers about changes in the tax codes which will affect upcoming returns. At 7:00, he shared information about changes at the Internal Revenue Service and gave tips on avoiding an audit.
Highlights of the information shared are listed below.
Changes That May Help Taxpayers This Year
There are new credits for owning a hybrid car and for energy efficient home improvements; taxpayers who have lost health insurance may qualify for a credit, and there’s a reduction in the small business tax rate in South Carolina.
Hybrid Vehicle Credit
An individual can take a credit of up to $2,000 for the purchase of certain “hybrid” vehicles. This incentive increases in 2006. Cars which qualify include the following:
2005 Ford Escape hybrid
2005 Honda Insight hybrid
2005 Honda Civic hybrid
2006 Lexus RX 400h
2005 Toyota Prius
2006 Toyota Highlander hybrid
Energy Efficient Home Improvement Credit
Starting in 2006 homeowners can take a credit of up to $500 for energy efficient home improvements. Examples are the replacement of exterior windows, doors, metal roofs, insulation material, heat pumps, or air conditioners.
Loss of Health Insurance Credit
If an individual has lost health insurance because the company is no longer writing in South Carolina and they now participate in the South Carolina Health Insurance Pool, they can get a credit of up to 50% of their current health insurance premiums.
Small Business Rate Reduction
The South Carolina tax rate for small businesses is reduced to 6.5% from 7% in 2006.
Donation “Check Boxes”
There are several new options for deductible contributions on the form. These funds are deducted directly from the tax refund and include the following organizations to which you can donate:
Endangered Wildlife Fund
Children’s Trust Fund
Eldercare Trust Fund
SC First Steps to School Readiness Fund
SC Veterans Trust Fund
Gift of Life Trust Fund
War Between the States Heritage Trust Fund
SC Litter Control Enforcement Program
SC Law Enforcement Assistance Program
K-12 Public Education Fund
SC State Parks Fund
SC Military Family Relief Fund
SC Conservation Bank Trust Fund
Changes With the IRS
Under the direction of the new commissioner, the IRS is getting much tougher on enforcing the laws. Thousands of new enforcement and collection agents have been hired. Audits and collection efforts are increasing and penalties have been strengthened. For the average taxpayer, this means more taxpayers are being audited, and more offenses are being prosecuted.
IRS officials report the following from the past year:
Individual return audits increased by 20%
Audits of small business corporations are up 250%
Audits of individuals earning over $100,000 have doubled in four years
Enforcement revenues have increased by 10%
Tips to avoid being audited include reporting all income on your personal return, keeping organized records of all deductions (charitable deductions, mortgage interest, medical expenses, property taxes), showing evidence of proceeds from stock sales or dividends on returns, and providing receipts of all business expenses not reimbursed. For mileage, have a log to verify the business miles driven.