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New tax laws bear close attention
Every new year brings new tax laws. Rather than wrestling with the new laws, though, many islanders turn to the experts to help figure it out.
From mid February to mid May each year, South Whidbey residents spend tens of thousands of dollars on accountants to convert piles of complicated income and investment information into accurate tax forms. Residents with more simple tax needs use free tax services offered around the island for their taxes.
Both options are often used to avoid an audit by the Internal Revenue Service, and to secure the best refunds, or lowest tax payments, possible.
Accountants stay updated on any changes in tax laws. This is knowledge Greenbank accountant Dale Offret charges for and his clients are happy to pay, as professional tax services can more than pay for themselves at tax filing time.
Heath Gunn, an accountant who practices in Langley, said compared to years like 1981 and 2001, 2005 will be a mild year for tax law changes.
In addition to paying professional tax preparers, island residents have the option of going to the American Association of Retired Persons free tax preparation offered at the Bayview Senior Center Thursdays. The AARP sessions are open to anyone, regardless of age and income level. Joan Wortman, the programs South Whidbey coordinator, said the volunteer tax preparers handle simple, non-complex forms. She said people often use the free tax preparer service because they find the laws too complicated.
Or in the case of Freeland resident Harold Swap, who used the service for the fifth straight year, the service offered piece of mind.
Computers provided at the tax sessions by the IRS for the tax preparers made it easier to file his taxes than if he did it himself, he said. Tax preparers type the tax figures and send it to the IRS through electronic filing. The tax preparer then hands the taxpayer a paper copy of his or her financial information as sent to the IRS.
It didnt take that long and I know its right, Swap said.
He said it also allows him to keep a nice refund check.
This is a fantastic service, said Stew McCelland, who said Thursday that the tax preparers immediately fixed a minor glitch in his tax form.
Main local impacts
According to Dale Offret, some of the tax laws having the most effect on his Whidbey Island clients are the sales tax deductions, child tax credit and expense limit for sport utility vehicles.
For the first time in almost 20 years, refunds for sales taxes paid last year are available for taxpayers. In Island County, taxpayers may receive a refund on the state sales tax paid in 2004. Taxpayers may either get their tax write off by using income-based charts provided by the IRS, or to use receipts saved through the year to itemize.
Offret said residents who bought big ticket items, such as cars and boats, may be eligible for both. The chart will determine the general sales taxes refund, and taxpayers receive an additional refund for boat or car. The construction boom on Whidbey Island may also benefit taxpayers. Offret said taxpayers may declare sales taxes paid on all materials purchased during construction, including wood and paint.
The change to child tax credit entitles anyone with a dependent child no older than 16 to receive a larger refund, if eligible. Eligibility requires a taxpayer to earn at least $10,750 in wages, salaries or other taxable income. If the credit amount exceeds what a taxpayer owes, taxpayers may include their children as a credit and receive an even larger tax refund.
This year, the tax credit rose from 10 percent to 15 percent.
It does help a lot of people, Offret said of the child tax credit.
The law reducing the write-off limit for SUVs took some local taxpayers by surprise. Originally intended to help the agriculture and logging industry, it allowed taxpayers to deduct the full cost of a vehicle weighing at least 6,000 pounds.
People found out that because their SUVs weighed more than 6,000 pounds, they were eligible to deduct the price of the vehicles from their taxes, Offret said.
A new law passed last year only allowed SUV owners to deduct $25,000 from vehicles purchased after Oct. 22.
Farming vehicles and trucks with beds more than six-feet long used in business are still eligible.