Individual Income Tax

1. Standard deductions

• Regular standard deductions: $9,700 (for MFJ or surviving spouse); $4,850 (S); $7,150 (HH); $4,850 (MFS).
• Standard deduction for dependent: $800, or $250 + earned income, whichever is greater. However, the standard deduction may not exceed the regular standard deduction for that individual.
• Additional standard deduction for married 65 or over or blind: $950. For single or HH age 65 or over or blind: $1,200.

2. Itemized deductions

• Phaseout of itemized deductions begins at AGI of $142,700 (all returns except MFS); $71,350 (MFS).

3. Personal exemptions

• Personal exemption for 2004: $3,100.
• Phaseout of personal exemption begins at AGI of $214,050 (MFJ or surviving spouse); $178,350 (HH); $142,700 (S); $107,025 (MFS).

4. Kiddie tax

• Unearned income of a child under 14: first $800 exempt from tax, next $800 taxed at child's rate, amount over $1,600 taxed at parent's rate.
• Parent may elect to include child's income on parent's return for unearned income of $800 to $8,000.
• AMT exemption for child under age 14: the lesser of (1) $5,750 + child's earned income, or (2) $40,250.

5. Marginal income tax rates

• The tax rate schedules for 2004 will be as follows:

6. Luxury auto excise tax

• No luxury auto excise tax in 2004.

7. Earned income tax credit (EITC)

• Disqualified income limit (generally investment income): $2,650.
• Maximum amount of earned income on which EITC is based: $5,100 (no qualifying children); $7,660 (joint filers with one qualifying child); $10,750 (two or more qualifying children).
• Phaseout of EITC begins at AGI of $7,390 (joint filers with no qualifying children); $6,390 (for others with no qualifying children); $15,040 (joint filers with one or more qualifying children); $14,040 (for others with one or more qualifying children).

8. Charitable deductions

• De minimis rules: Charitable contributions will be fully deductible if the donor makes a minimum payment of $41 and receives token gifts with a cost of $8.20 or less. Charitable contributions will also be fully deductible if the benefit received by the donor doesn't exceed the lesser of $82 or 2% of the amount of the contribution.
• Use of auto for charitable purposes: The deductible standard mileage rate is 14 cents per mile.

9. Foreign earned income exclusion

• The foreign earned income exclusion is $80,000.

10. Deductible standard mileage rates

• Use of auto for business purposes: 37.5 cents per mile.
• Use of auto for medical purposes: 14 cents per mile.
• Use of auto for moving purposes: 14 cents per mile.

11. Child tax credit

• Maximum credit of $1,000 per qualifying child.

Child tax credit phaseout threshold:

• Married filing jointly or surviving spouse, $110,000.
• Single or head of household, $75,000.
• Married filing separately, $55,000.

• Credit is refundable up to 10 percent of earned income which exceeds $10,750.

12. Alternative Minimum Tax (AMT)
Maximum AMT exemption amount for 2004:

• Married filing jointly or surviving spouse, $58,000.
• Single or head of household, $40,250.
• Married filing separately, $29,000.

AMT income exemption phaseout threshold:

• Married filing jointly or surviving spouse, $150,000.
• Single or head of household, $112,500.
• Married filing separately, $75,000.

13. Adoption Credit

• The maximum adoption credit is $10,390 for 2004.
• Phaseout of the adoption credit begins at $155,860, the completed phaseout amount is $195,860.

Investment Planning

1. Capital gains under the 2003 Tax Act

• 20% rate is reduced to 15% for long-term capital gains on sales or exchanges on or after May 6, 2003 and before January 1, 2009. The 15% rate applies to taxpayers who are in a marginal tax bracket greater than 15%.
• 10% rate is reduced to 5% (zero in 2008) on long-term capital gains for taxpayers who are in the 15% or lower marginal tax brackets.

2. Dividends under the 2003 Tax Act

• Dividends received by an individual shareholder from domestic and qualified foreign corporations will generally be taxed at the same rates as capital gains (15%, 5% for those in the 15% or lower marginal tax brackets, with the 5% rate lowered to zero for 2008). This change is effective for dividends received in 2003 through 2008.
• Previously, dividends were taxed as ordinary income.

Education Planning

1. U.S. savings bonds

• Phaseout of interest exclusion begins at modified AGI over $59,850 ($89,750 on a joint return). The completed phaseout amount is $74,850 ($119,750 for a joint return).

2. Coverdell education savings accounts (formerly known as education IRAs)

• Annual contribution limit is $2,000.
• Phaseout of eligibility to contribute begins at modified AGI over $95,000 on a single return ($190,000 on a joint return). The completed phaseout amount is $110,000 on a single return ($220,000 for a joint return).

3. Hope and Lifetime Learning credits

• Maximum Hope credit is $1,500.
• Maximum Lifetime Learning credit is $2,000.
• Phaseout of eligibility for the Hope and Lifetime Learning credits begins at modified AGI over $42,000 on a single return ($85,000 for a joint return). The completed phaseout amount is $52,000 on a single return ($105,000 for a joint return).

4. Deduction for qualified higher education expenses

• Maximum deduction in 2004 is $4,000, available if modified AGI is $65,000 or less on a single return ($130,000 or less for a joint return).
• Deduction is limited to $2,000 for single filers with MAGI between $65,000 and $80,000 ($130,000 to $160,000 for a joint return).
• No deduction is available for single filers with MAGI over $80,000 (joint returns over $160,000).

5. Interest on education loans

• Maximum student loan interest deduction is $2,500.
• Phaseout of eligibility for the deduction begins at modified AGI over $50,000 on a single return ($100,000 for a joint return). The completed phaseout amount is $65,000 on a single return ($130,000 for a joint return).

Retirement Planning

1. 401(k), SARSEP, and 403(b) contributions (elective deferrals)

• Annual contribution limit is $13,000.
• Elective deferral for a SIMPLE retirement account is $9,000.

2. Section 457 contributions

• Annual contribution limit is $13,000.

3. Defined contribution plans (Section 415 limit)

• The dollar limit is $41,000.

4. Defined benefit plans

• The annual benefit limit is $165,000.

5. IRA contributions (deductible, nondeductible, and Roth IRAs)

• Annual contribution limit is $3,000 (increasing to $5,000 in 2008), plus $500 catch-up if 50 or older.

6. Additional catch-up contribution limits (individuals age 50 and over)

• IRAs: $500
• 401(k) plans, 403(b) plans, and 457 plans: $3,000
• SIMPLE 401(k) plans and SIMPLE IRA plans: $1,500

7. Traditional IRA--Income phase-out range for determining deductibility
For those covered by an employer-sponsored plan, the phase-out range for deducting a 2004 contribution to a traditional IRA is:

• Single filing status: $45,000 to $55,000
• Married filing jointly: $65,000 to $75,000
• Married filing separately: $0 to $10,000

For those not covered by an employer-sponsored plan, but filing a joint return with a spouse who is covered by an employer-sponsored plan, the phase-out range for deducting a 2004 contribution to a traditional IRA is $150,000 to $160,000.

8. Roth IRA--Income phase-out range for funding eligibility
The phase-out range for making a 2004 contribution to a Roth IRA is:

• Single filing status: $95,000 to $110,000
• Married filing jointly: $150,000 to $160,000
• Married filing separately: $0 to $10,000

• The annual income limit for determining ability to convert a traditional IRA to a Roth IRA is $100,000

Business Planning

1. Qualified transportation fringe benefits

• Employee can exclude up to $195 per month for qualified parking expenses.
• Employee can exclude up to $100 per month for combined value of transit passes and transportation in a commuter highway vehicle.

2. Earnings subject to FICA taxes (taxable wage base)

• Maximum annual earnings subject to Social Security taxes rises to $87,900 in 2004.
• Social Security and Medicare combined tax rate remains at 15.3%. The 12.4% OASDI (Old Age, Survivors, and Disability Insurance) tax rate applies to wages up to the new $87,900 wage base. The Hospital Insurance portion (Medicare) remains 2.9%.

3. Health insurance deduction for self-employed

• Deduction for health insurance premiums paid by self-employed is 100% in 2004.

4. Optional standard mileage rate

• Use of auto for business purposes: 37.5 cents per mile.

5. Increased section 179 expensing under the 2003 Tax Act

• Maximum amount that may be deducted under section 179 is increased to $102,000.
• Deduction reduced by amount by which cost of qualifying property placed in service during the year exceeds $410,000.

6. Special additional first-year depreciation allowance for certain property under the 2003 Tax Act

• Special additional (bonus) first-year depreciation deduction equal to 50% of the adjusted basis of qualified property acquired after May 5, 2003 and before January 1, 2005, and placed in service prior to January 1, 2005 (January 1, 2006 for certain property).
• The Job Creation and Worker Assistance Act of 2002 provided for 30% special additional first-year depreciation.
• Property is not eligible for both the 50% and 30% special additional first-year depreciation.

7. Tax on accumulated earnings and personal holding company income under the 2003 Tax Act

• The tax rate on accumulated earnings and personal holding company income is reduced to 15% under the 2003 Tax Act. Previously, these items were taxed at the highest marginal personal income tax rate.

8. Adoption Assistance Programs

• The maximum amount that may be excluded from an employee's gross income is $10,390 in 2004
• Phaseout of eligibility for the deduction begins at $155,860. The completed phaseout amount is $195,860.

Estate Planning

1. Gift/transfer tax exclusions

• The annual gift tax exclusion is $11,000 ($22,000 for married couples making joint gifts).
• The estate tax applicable exclusion amount is $1,500,000
• The gift tax applicable exclusion amount is $1,000,000.
• The annual exclusion for gifts to noncitizen spouses is $114,000.
• The generation-skipping transfer tax (GSTT) exemption is $1,500,000.

2. Special use valuation reduction limit

• The limit on the decrease in value that can result from the use of special valuation increases to $850,000 in 2004.

3. Qualified conservation easement exclusion

• If requirements are met, the executor of the estate of a taxpayer dying after 1997 may elect to exclude up to 40% of the value of land subject to a qualified conservation easement. The amount that may be excluded from the gross estate is $500,000 in 2004.

4. Qualified funeral trusts

• The maximum contribution (aggregate contribution limit) to a qualified funeral trust is $8,000 in 2004.

5. 2004 Estate tax rate schedule

Protection Planning

1. Long-term care insurance (LTCI)

• Qualified LTCI premiums are deductible as medical expenses within the following limits:

• Qualified LTCI benefits are excludable from income (as amounts received for personal injuries and sickness), subject to a per diem limitation of $230.

2. Archer Medical Savings Accounts

• Qualifying high deductible health care plan, minimum deductible is $1,700 for self-only coverage, $3,450 for family coverage.
• Maximum deductible is $2,600 for self-only coverage, $5,150 for family coverage.
• Annual out-of-pocket expenses required to be paid (other than for premiums) can't exceed $3,450 for self-only coverage, $6,300 for family coverage.

Government Benefits

1. Social Security (general information)

• Amount of earnings required for a quarter of coverage will be $900.
• Domestic employee coverage threshold will be $1,400.
• Average monthly Social Security benefit check for retired workers will increase to $922 in January 2004.
• Maximum monthly benefit for a low-income couple (SSI) will increase to $846.
• Maximum monthly benefit for a low-income beneficiary (SSI) will increase to $564.
• Full retirement age increases to 65 years and 4 months.
• Annual maximum earnings for Social Security beneficiary under full retirement age without a reduction in benefits (retirement earnings test) will be $970 monthly ($11,640 annually). One dollar in benefits will be withheld for every $2 in earnings above the limit. One dollar in benefits will be withheld for every $3 in earnings in excess of the earnings threshold of $2,590 per month ($31,080 annually) in the calendar year of attaining full retirement age, but only for months prior to attaining full retirement age.
• The 2004 Social Security monthly PIA (primary insurance amount) formula will be 90% of the first $612 of AIME (average index monthly earnings), plus 32% of the AIME over $612 and through $3,689, plus 15% of the AIME over $3,689.

2. Earnings subject to FICA taxes (taxable wage base)

• Maximum annual earnings subject to Social Security taxes rises to $87,900 in 2004.
• Social Security and Medicare combined tax rate remains at 15.3%. The 12.4% OASDI (Old Age, Survivors, and Disability Insurance) tax rate applies to wages up to the new $87,900 wage base. The Hospital Insurance portion (Medicare) remains 2.9%.

3. Medicare (general information)

• Medicare Part B premiums rise to $66.60 per month in 2004.
• Medicare Part B deductible remains at $100 (same as 2003).
• Medicare Part A monthly premium will be $343 for individuals with less than 30 quarters of Medicare-covered employment and for disabled individuals under age 65 who lost disability benefits because of work and earnings.
• Medicare Part A monthly premiums for seniors with 30 to 39 quarters of Medicare-covered employment will be $189.

4. Medicare Part A deductibles and coinsurance for inpatient hospital care

• Deductible for up to 60 days of inpatient hospital care (fee-for-service Medicare) will increase to $876.
• Coinsurance for 61 to 90 days will be $219 per day.
• Coinsurance for 91 to 150 days will be $438 per day.
• Coinsurance for beneficiaries in a skilled nursing facility in a benefit period will be $109.50 per day for the 21st through 100th day of extended care services.

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