This section summarizes important tax changes that took effect in 2005. Most of these changes are discussed in more detail throughout this publication.

Changes are also discussed in Publication 553, Highlights of 2005 Tax Changes.

Katrina Emergency Tax Relief Act of 2005. This Act provides tax relief for persons affected by Hurricane Katrina. The provisions of the Act are explained in Publication 4492.

Telefile no longer available. You no longer can use Telefile to file your tax return. There are other IRS e-file options you can use. See chapter 1.

Automatic six month extension to file tax return. You can now use Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return, to obtain an automatic 6-month extension of time to file your tax return. See chapter 1.

New definition of a qualifying child. A new definition of a “qualifying child” applies for each of the following tax benefits.

Standard mileage rates. The standard mileage rate for the cost of operating your car increased to 40.5 cents a mile for all business miles driven before September 1, 2005. For business miles driven after August 31, 2005, the rate increased to 48.5 cents a mile. See chapter 26. The standard mileage rate allowed for use of your car for medical reasons increased to 15 cents for miles driven before September 1, 2005, and to 22 cents for miles driven after August 31, 2005. See chapter 21. The standard mileage rate allowed for use of your car for determining moving expenses increased to 15 cents for miles driven before September 1, 2005, and to 22 cents for miles driven after August 31, 2005. See Publication 521.

Retirement savings plans.  The following paragraphs highlight changes that affect individual retirement arrangements (IRAs) and pension plans. Traditional IRA income limits. If you have a traditional IRA and are covered by a retirement plan at work, the amount of income you can have and not be affected by the deduction phaseout increases. The amounts vary depending on filing status. See chapter 17. Limit on elective deferrals. The maximum amount of elective deferrals under a salary reduction agreement that could be contributed to a qualified plan increased to $14,000 ($18,000 if you were age 50 or older). However, for SIMPLE plans, the amount increased to $10,000 ($12,000 if you were age 50 or older). IRA deduction expanded. The amount you, and your spouse if filing jointly, may be able to deduct as an IRA contribution will increase to $4,000 ($4,500 if age 50 or older at the end of 2005). See chapter 17.

Contributions. If you donate a car, boat, or airplane or a patent or other intellectual property to a qualified organization, your deduction may be limited. See chapter 24.

Domestic production activities deduction. There is a new deduction for domestic production activities. This deduction can be passed to you from a business. For more information, see Form 8903.

Disaster mitigation payments. You may be able to exclude from income grants you use to mitigate (reduce the severity of) potential damage from future natural disasters that is paid to you through state and local governments. If you reported income from qualified disaster mitigation payments in previous years, you may be able to file a claim for refund. See chapter 12.

Certain amounts increased. Some tax items that are indexed for inflation increased for 2005. Earned income credit (EIC). The maximum amount of income you can earn and still get EIC increased. The amount depends on your filing status and number of children. The maximum amount of investment income you can have and still be eligible for the credit has increased to $2,700. See chapter 36. Standard deduction. The standard deduction for taxpayers who do not itemize deductions on Schedule A (Form 1040) has increased. The amount depends on your filing status. See chapter 20. Exemption amount. You are allowed a $3,200 deduction for each exemption to which you are entitled. However, your exemption amount could be phased out if you have high income. See chapter 3. Limit on itemized deduction. Some of your itemized deductions may be limited if your adjusted gross income is more than $145,950 ($72,975 if you are married filing separately). See chapter 29. Tax benefits for adoption. The adoption credit and the maximum exclusion from income of benefits under an employer's adoption assistance program are increased to $10,630. See Adoption Credit in chapter 37. Hope or lifetime learning credit income limits increased. The amount of income you can have and still receive a Hope or lifetime learning credit has increased. See chapter 37. Social security and Medicare taxes. The maximum wages subject to social security tax (6.2%) increased to $90,000. All wages are subject to Medicare tax (1.45%).

Mailing your return. If you are filing a paper return, you may be mailing your return to a different address because the IRS has changed the filing location for several areas. If you received an envelope with your tax package, please use it. Otherwise, see Where to File near the end of this publication for a list of IRS addresses.

This section summarizes the important changes that take effect in 2006 that could affect your estimated tax payments for 2006. More information on these and other changes can be found in Publication 553.

Energy credits. You may be able to claim a new tax credit for the purchase of qualified energy efficiency improvements to your existing home. You may be able to claim a tax credit for the purchase of residential solar water heating, photovoltaic equipment, or fuel cell property.

Retirement savings plans.  The following paragraphs highlight changes that affect individual retirement arrangements (IRAs) and pension plans. Traditional IRA income limits. If you have a traditional IRA, are covered by a retirement plan at work, and are married filing jointly or a qualifying widow(er), the amount of income you can have and not be affected by the deduction phaseout increases. The amounts for other filing statuses are not changed. Limit on elective deferrals. The maximum amount of elective deferrals under a salary reduction agreement that can be contributed to a qualified plan increases to $15,000 ($20,000 if you are age 50 or older). However, for SIMPLE plans, the amount is $10,000 ($12,500 if you are age 50 or older). IRA catch-up contribution. The catch-up contribution for persons age 50 or older at the end of 2006 is increased to $1,000. The maximum contribution for such person is $5,000.

Alternative minimum tax (AMT). The AMT exemption amount will decrease. The amount depends on your filing status.

Phaseouts reduced. Personal exemptions. The phaseout of the limitation on personal exemptions will be reduced by 1/3. Itemized deductions. The phaseout of the limitation on itemized deductions will be reduced by 1/3.

Alternative technology vehicles. You may be able to take a credit if you place an alternative technology vehicle in service during the year. See chapter 37. You no longer can take a deduction for clean-fuel vehicles.

Listed below are important reminders and other items that may help you file your 2005 tax return. Many of these items are explained in more detail later in this publication.

Write in your social security number. To protect your privacy, social security numbers (SSNs) are not printed on the peel-off label that comes in the mail with your tax instruction booklet. This means you must enter your SSN in the space provided on your tax form. If you filed a joint return for 2004 and are filing a joint return for 2005 with the same spouse, enter your names and SSNs in the same order as on your 2004 return. See chapter 1. Victim of identity theft. If you believe someone has assumed your identity to file federal income tax returns, or to commit other tax fraud, call 1-800-829-0433. Victims of identity theft who are having trouble filing their returns should call the IRS Taxpayer Advocates Office at 1-877-777-4778. You should also know that the IRS does not initiate communication with taxpayers through email. If you do receive this type of request, it may be an attempt by identity thieves to get your private tax information.

Taxpayer identification numbers. You must provide the taxpayer identification number for each person for whom you claim certain tax benefits. This applies even if the person was born in 2005. Generally, this number is the person's social security number (SSN). See chapter 1.

Foreign source income. If you are a U.S. citizen with income from sources outside the United States (foreign income), you must report all such income on your tax return unless it is exempt by U.S. law. This is true whether you reside inside or outside the United States and whether or not you receive a Form W-2 or 1099 from the foreign payer. This applies to earned income (such as wages and tips) as well as unearned income (such as interest, dividends, capital gains, pensions, rents and royalties). If you reside outside the United States, you may be able to exclude part or all of your foreign source earned income. For details, see Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.

Earned income credit. You can choose to include combat pay in your earned income for purposes of computing this credit. If you are married, each of you can make this election separately. Form 8836. If you received Form 8836, Qualifying Children Residency Statement, you have been selected to participate in the EIC certification program. See chapter 36.

Advance earned income credit. If a qualifying child lives with you and you expect to qualify for the earned income credit in 2006, you may be able to get part of the credit paid to you in advance throughout the year (by your employer) instead of waiting until you file your tax return. See chapter 36.

Sales tax deduction. You can choose to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Form 1040, Schedule A. See chapter 22.

Tax Computation Worksheet. If your taxable income is $100,000 or more, figure your tax using the Tax Computation Worksheet. The Tax Computation Worksheet is found near the end of this publication immediately following the Tax Rate Schedules. (The Tax Rate Schedules are shown so you can see the tax rate that applies to all levels of taxable income. Do not use the Tax Rate Schedules to figure your tax.)

Joint return responsibility. Generally, both spouses are responsible for the tax and any interest or penalties on a joint tax return. In some cases, one spouse may be relieved of that responsibility for items of the other spouse that were incorrectly reported on the joint return. See chapter 2.

Include your phone number on your return. To promptly resolve any questions we have in processing your tax return, we would like to be able to call you. Please enter your daytime telephone number on your tax form next to your signature.

Third party designee. You can check the “Yes” box in the “Third Party Designee” area of your return to authorize the IRS to discuss your return with a friend, family member, or any other person you choose. This allows the IRS to call the person you identified as your designee to answer any questions that may arise during the processing of your return. It also allows your designee to perform certain actions. See chapter 1.

Payment of taxes.  Make your check or money order payable to “United States Treasury.” You can pay your taxes by credit card, using the Electronic Federal Tax Payment System (EFTPS), or, if you file electronically, by electronic funds withdrawal. See chapter 1.

Faster ways to file your return. The IRS offers fast, accurate ways to file your tax return information without filing a paper tax return. You can use IRS e-file (electronic filing). See chapter 1.

Free electronic filing.  You may be able to file your 2005 taxes online for free thanks to an electronic filing agreement. See chapter 1.

Change of address. If you change your address, you should notify the IRS. See Change of Address, under What Happens After I File, in chapter 1.

Private delivery services. You may be able to use a designated private delivery service to mail your tax returns and payments. See chapter 1.

Refund on a late filed return. If you were due a refund but you did not file a return, you generally must file your return within 3 years from the date the return was due (including extensions) to get that refund. See chapter 1.

Privacy Act and paperwork reduction information.  The IRS Restructuring and Reform Act of 1998, the Privacy Act of 1974, and the Paperwork Reduction Act of 1980 require that when we ask you for information we must first tell you what our legal right is to ask for the information, why we are asking for it, how it will be used, what could happen if we do not receive it, and whether your response is voluntary, required to obtain a benefit, or mandatory under the law. A complete statement on this subject can be found in your tax form instruction booklet.

Customer service for taxpayers expanded.  The Internal Revenue Service has expanded customer service for taxpayers. Through the agency's Everyday Tax Solutions service, you can set up a personal appointment at the most convenient Taxpayer Assistance Center, on the most convenient business day. See How To Get Tax Help in the back of this publication.

Treasury Inspector General for Tax Administration.  If you want to confidentially report misconduct, waste, fraud, or abuse by an IRS employee, you can call 1-800-366-4484 (1-800-877- 8339 for TTY/TDD users). You can remain anonymous.

Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.

This publication covers the general rules for filing a federal income tax return. It supplements the information contained in your tax form instruction booklet. It explains the tax law to make sure you pay only the tax you owe and no more.

Table 1. Legend of Icons

Icon	Explanation
	Items that may cause you particular problems, or an alert about pending legislation that may be enacted after this publication goes to print.
	An Internet site or an email address.
	An address you may need.
	Items you should keep in your personal records.
	Items you may need to figure or a worksheet you may need to complete.
	An important phone number.
	Helpful information you may need.