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Retirement Plans / Individual Retirement Arrangements
The elective deferral limit for 401(k), 403(b) and most 457 plan
participants rose to $13,000 ($16,000 for 403(b) participants for whom the
15-year rule applies). For SIMPLE plans, the limit rose to $9,000.
The catch-up contribution limit for persons age 50 or older rose to $3,000
for 401(k), 403(b) and 457 plans and to $1,500 for SIMPLE plans.
The $10,000 phaseout range for IRA deductions for those covered by a pension
plan begins at income of $45,000 ($65,000 if married filing jointly or a
qualifying widow(er)). It still begins at zero for married persons filing
separately.
Extension of Expiring Provisions
These provisions were left unchanged through 2005:
Deduction for Educator Expenses
Qualified Electric Vehicle Credit and Clean-fuel Vehicle Deduction
Archer Medical Savings Accounts
DC First-time Homebuyer Credit
Allowance of nonrefundable personal credits against the alternative minimum
tax
Miscellaneous Items
When itemizing, taxpayers have the choice of deducting state and local
income or sales taxes. An optional state sales tax table may be used in lieu
of receipts for sales taxes paid. Sales taxes paid on a motor vehicle may be
added to the table result, but only up to the amount paid at the general
sales tax rate. Sales taxes on a boat, plane, home, or home building
materials may be added if taxed at the general sales tax rate.
For most noncash charitable contributions after June 3, 2004, taxpayers must
satisfy these reporting requirements, based on the value of the deduction:
More than $5,000 obtain a qualified appraisal and attach Form 8283
More than $500,000 (if art, $20,000 or more) attach a copy of the
appraisal
An above-the-line deduction is available for contributions to Health
Savings Accounts made by April 15, 2005. The deduction is limited to the
annual deductible on the qualifying high deductible health plan, but not
more than $2,600 ($5,150, if family coverage). These limits are $500 higher
if the taxpayer is age 55 or older ($500 each if both spouses are 55 or
older). A person cannot contribute to an HSA starting the first month he or
she is enrolled in Medicare.
Taxpayers may not exclude any gain on the sale of a principal residence if
they sold the property after Oct. 22, 2004, and had acquired it in a
like-kind exchange during the five-year period ending on date of the sale.
The standard mileage rate for business purposes rose to 37½ cents per mile.
For medical or moving purposes, it rose to 14 cents per mile.
Business taxpayers may take a Section 179 expense deduction for up to
$102,000 of qualifying equipment purchases, with this limit reduced by the
amount that the total cost of section 179 property placed in service during
the year exceeds $410,000. The limit for certain sport utility and other
vehicles that are not subject to the passenger auto limits and were placed
in service after Oct. 22, 2004, is $25,000.
IRS Publication 553, Highlights of 2004 Tax Changes, will have more details
on the new provisions. It will be available in February 2005 for download or
by calling (toll-free) 1-800-TAX-FORM (1-800-829-3676).
Inflation Adjustments for 2004
The filing requirements, personal exemption, standard deduction and maximum
Earned Income Tax Credit amounts are among the inflation-adjusted items.
The 2004 gross income filing requirements are:
Single $7,950
Head of household $10,250
Married filing jointly $15,900
Married filing separately $3,100
Qualifying widow(er) $12,800
Different amounts apply if the taxpayer or spouse is age 65 or older, or if
the taxpayer can be claimed as a dependent on someone else's return. There
are also other specific situations that require the filing of a return, such
as when the net earnings from self‑employment are $400 or more.
The personal exemption amount for 2004 is $3,100 $50 more than last year.
Higher income taxpayers may have to reduce the personal exemption amount
they claim if their adjusted gross income exceeds:
Single $142,700
Head of household $178,350
Married filing jointly or Qualifying widow(er) $214,050
Married filing separately $107,025
These taxpayers use a worksheet in the tax package to figure their deduction
for exemptions.
The standard deduction amounts for 2004 are:
Single or Married Filing Separately $4,850
Head of household $7,150
Married filing jointly or Qualifying widow(er) $9,700
Different amounts apply if the taxpayer or spouse is blind or is age 65 or
older, or if the taxpayer can be claimed as a dependent on someone else's
return.
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