Taxing Matters

Leigh Gallagher
Still haven't filed your taxes? You've got two months until April 15 (April 17, actually, but more on that later), but the clock is already ticking. If you haven't been paying attention, there were several changes made to the tax code last year that could affect you. Below are some of the biggies.

Hurricane relief. The IRS has tax breaks this year for victims of Hurricane Katrina and those who helped them. The biggest and most far-reaching: typically, cash donations are deductible only up to 50 percent of adjusted gross income. But cash contributions made between August 28 and December 31 to a public charity won't count toward that limit and the money need not have been earmarked for hurricane aid specifically. If you housed hurricane victims for 60 continuous days, you can take an additional $500 exemption.

Shop 'til you drop. 2005 is the last year you can deduct what you've paid in state and local sales tax instead of state and local income taxes. This is a big plus for anyone living in the eight states that tax sales, but not earned income. If you haven't kept your receipts all is not lost; the IRS estimates what people at various income levels pay in sales tax in a typical year. If you made a big purchase, like a car, that may push you above the estimate, you can claim the larger amount.

Paper or plastic? Last year, about 1.5 million taxpayers paid federal taxes on credit cards, a 54 percent increase from 2004, according to the IRS. Credit card companies are trying to step that up even more this year by offering double miles and other incentives as a reward. Should you do this? Not if you can help it. Obviously, you'll pay interest on the charge, and depending on your bill that could add up quickly if you don't pay it off immediately. But you'll also pay a fee of roughly 2.49 percent to the third-party firms that process the transaction. Check your rewards plan if you have one; the free miles may not be worth it.

I'll do it tomorrow. Finally, a reason to love the IRS (okay, maybe “love” is a strong word). It's letting you procrastinate a bit more this year. Since April 15 falls on a Saturday, the filing deadline this year is two days later — Tuesday, April 17. Need more time? You can now get an automatic extension for six months just by filing a form (note that this is an extension for filing, not paying). File electronically like the 68 million people who did so last year, and get your refund in two to four weeks — half the time it takes to process paper returns.

For more consumer tips, tune in to "The Cost of Freedom" business block, Saturday starting at 10am ET.

Leigh Gallagher is a senior writer for SmartMoney magazine and a regular contributor to "Cavuto on Business".