Tax change for the better?

The W-2s are being printed, tax-preparation companies are advertising their services and the Internal Revenue Service is lining up its auditors.

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That's right - it's tax season.

Though the April 15 filing deadline is still months away, now is the time to start preparing. And some of the deduction changes to the federal tax laws hopefully will bring filers big refunds.

"A lot of (the changes) are just amount changes," IRS spokesman Eric Erickson said.

Some of the changes include a $50 increase in the personal exemption, to $3,100. The standard deduction is up $100 to $4,850 for single filers and up $200 to $9,700 for married taxpayers filing jointly.

And the maximum deductible 401(k) contribution is up $1,000 to $13,000.

"Every little bit that you can knock a tax liability down helps," said Chad Barrs, the owner of three Liberty Tax Service centers in Augusta. "But it's not a huge increase."

Of the few tax returns Mr. Barrs has completed, the refunds have been similar to a year ago.

Karen Stinson, a tax accountant on Wheeler Road, said the deduction increases were standard.

"They increase every year," she said.

Of interest to educators is the federal government's extension of the $250 deduction for school supplies purchased by teachers. But the tax changes are not without some noticeable differences:

Sales tax:

For the first time, taxpayers itemizing their deductions can choose to deduct their state and local income taxes or the sales taxes they paid during the year.

State income tax has been a deductible item for many years, but sales tax wasn't. The change will benefit people living in one of the eight states that don't charge state income tax, Mr. Erickson said.

Filers who kept receipts with their sales tax payments can deduct the actual amount of sales taxes they paid. For filers who didn't keep receipts, the IRS is creating sales tax estimates based on household income and family size.

Residents of Georgia and South Carolina aren't likely to benefit much, Ms. Stinson said.

"It's of very limited use to anyone who pays state income tax," she said.

According to Ms. Stinson, a family of three with two working parents with combined annual earnings of $100,000 would get a sales tax deduction of about $800 but likely would pay $3,000 or $4,000 in state income taxes.

Soldier's compensation

The IRS is offering soldiers in combat the option of counting their combat pay as earned income when calculating their Earned Income Tax Credit.

The tax credit is worth as much as $4,300 and is designed to help people, particularly parents, whose income falls within a specified range, depending on the number of children they have.

Combat pay was not previously considered earned income because it isn't taxed.

"This is truly a taxpayer-friendly law," Ms. Stinson said.

Under the old system, a private with a child who earns $18,000 a year might only get $3,000 in earned income, which wouldn't qualify him or her for much of an earned income credit.

By listing some of his combat pay as earned income, his tax credit would increase.

"It's a good change for almost anybody in the military who has combat pay," Ms. Stinson said.

Soldiers who count their combat pay as earned income still won't be taxed on it.

Tsunami relief

To encourage charitable contributions to tsunami relief efforts, the IRS is allowing taxpayers who itemize their deductions to include thier charitable contributions made in January 2005 in their 2004 tax return.

Charitable contributions are generally deducted in the calendar year they are made.

However, the massive destruction that was caused by the tsunami in southeast Asia is changing the IRS' policy this year.

"Simply write your check by the end of this month and the donation will be treated as if it were still 2004," Mr. Erickson said.

Taxpayers need to be careful of which organizations they donate to, as donations to foreign organizations generally are not deductable.

New for 2004

Georgia Income tax changes:

 •  Individuals in jail can no longer file for a low-income tax credit.

 •  The penalty for filing a frivolous tax return has been increased from $500 to $1,000.

 •  The state has added the Georgia Greenspace Trust Fund to its list of charitable organizations.

 •  Taxpayers who have rehabilitated a historic structure or home are eligible for a tax credit up to $5,000.South Carolina Tax Changes

 •  Reserve police officers and Department of Natural Resources deputy enforcement officers are now eligible for $3,000 tax deduction.

 •  A 25 percent credit against property or income tax is allowed for rehabilitation of a textile manufacturing facility.

 •  A 20 percent tax credit, up to $100,000, is allowed for investment in a qualified state motion picture project or production facility.

Sources: Georgia and South Carolina departments of revenue