Recent Changes May Affect Your 2004 Taxes
Some recent tax law changes are effective for the 2004 Tax Year. If these items affect you, be sure to get the details when you prepare your tax return early next year.
(PRWEB) November 8, 2004
Some recent tax law changes are effective for the 2004 Tax Year. If these items affect you, be sure to get the details when you prepare your tax return early next year.
Exemption Amount Increased: The amount you can deduct for each exemption has increased from $3,050 in 2003 to $3,100 in 2004. You lose all or part of the benefit of your exemptions if your adjusted gross income is above a certain amount. The amount at which the phaseout begins depends on your filing status.
For 2004, the phaseout begins at:
$107,025 for married persons filing separately, $142,700 for single individuals, $178,350 for heads of household, and $214,050 for married persons filing jointly and qualifying widow(er)s with dependent children.
Retirement Savings Plans: The following paragraphs highlight changes that affect individual retirement arrangements (IRAs) and pension plans.
Traditional individual retirement arrangement income limits. If you have a traditional individual retirement arrangement 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.
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 $13,000 ($16,000 if you are age 50 or over). However, for SIMPLE plans, the amount increases to $9,000 ($10,500 if you are age 50 or over).
Standard Deduction Amount Increased: The standard deduction for taxpayers who do not itemize deductions on Schedule A of Form 1040 is, in most cases, higher for 2004 than it was for 2003. The amount depends on your filing status, whether you are 65 or older or blind, and whether an exemption can be claimed for you by another taxpayer.
The basic standard deduction amounts for 2004 are:
Head of household - $7,150 Married taxpayers filing jointly and qualifying widow(er)s - $9,700 Married taxpayers filing separately - $4,850 Single - $4,850
The full 2004 Standard Deduction Tables will be shown in the January 2004 version of (http://www. irs. gov/publications/p505/index. html (http://www. irs. gov/publications/p505/index. html)) Publication 505, Tax Withholding and Estimated Tax.
Tuition and Fees Deduction: Beginning in 2004, the amount of qualified education expenses you can take into account in figuring your tuition and fees deduction increases from $3,000 to $4,000 if your modified adjusted gross income (MAGI) is not more than $65,000 ($130,000 if you are married filing jointly). If your MAGI is more than $65,000 ($130,000), but not more than $80,000 ($160,000 if you are married filing jointly), your maximum tuition and fees deduction will be $2,000. No tuition and fees deduction will be allowed if your MAGI is more than $80,000 ($160,000). The tuition and fees deduction is explained in chapter 6 of (http://www. irs. gov/publications/p970/index. html (http://www. irs. gov/publications/p970/index. html)) Publication 970, Tax Benefits for Education.
EducatorsÂ’ Deduction: This had expired at the end of 2003, but was restored for two more years. IR-2004-124 has more information.
Clean Fuel Vehicle Deduction: The maximum amount of this deduction was scheduled to drop this year and next, but has been retained at the $2,000 level through 2005. IR-2004-125 has information on this deduction and the newest vehicle to qualify for it.
Child Tax Credit: Taxpayers with a credit amount more than their tax could get a refund of the difference, up to 10% of the amount by which their 2004 taxable earned income exceeds $10,750. This percentage was raised to 15% for 2004, meaning a larger refund for many of these taxpayers.
Combat Pay: Some military personnel receiving combat pay get larger tax credits because of two law changes. The new law counts excludable combat pay as income when figuring the Child Tax Credit and gives the taxpayer the option of counting or ignoring combat pay as income when figuring the Earned Income Tax Credit. Counting combat pay as income when calculating these credits does not change the exclusion of combat pay from taxable income.
Sales Tax Deduction: Taxpayers who itemize deductions will have a choice of claiming a state and local tax deduction for either sales or income taxes on their 2004 and 2005 returns. The IRS will provide optional tables for use in determining the deduction amount, relieving taxpayers of the need to save receipts throughout the year. Sales taxes paid on motor vehicles and boats may be added to the table amount, but only up to the amount paid at the general sales tax rate. Taxpayers will check a box on Schedule A, Itemized Deductions, to indicate whether their deduction is for sales or income taxes.
Expense Limit for SUVs: Businesses should be aware of a change regarding the deduction for certain sport utility vehicles (SUVs) placed in service after Oct. 22. Under the American Jobs Creation Act of 2004, businesses cannot take a first-year deduction of more than $25,000 for an SUV. The business would depreciate the remaining cost. (The limit for vehicles placed in service before Oct. 23 was $100,000.) The new limit does not affect other types of property where the taxpayer decides to expense the cost instead of depreciating the property.
Sale of Personal Residence Acquired in a Like-kind Exchange: Taxpayers who convert rental property to a principal residence should know that a tax law change may limit their ability to exclude gain on the sale of that residence if they obtained the property through a like-kind exchange. Generally, a taxpayer can exclude up to $250,000 of gain on the sale of a home, provided the individual has owned and used it as a principal residence for two out of the five years before the sale. The exclusion is $500,000 for a married couple if both meet the use test. The American Jobs Creation Act of 2004 does not allow any exclusion if the taxpayer sells the home within five years of acquiring the property through a like-kind exchange. The new law applies to sales after October 22, 2004.
To help you with your 2004 IRS income tax return, http://www. taxhead. com (http://www. taxhead. com) and http://www. latinoefile. com (http://www. latinoefile. com) offer secure, easy online tax preparation and filing. Their software includes all the new tax laws applicable to the 1040A ("short") tax form.
###
