New Legislation in 2004:

The Working Families Tax Relief Act of 2004—signed October 4, 2004

The majority of the Act extends tax provisions that expired at the end of 2003 or that were scheduled to expire at the end of 2004.  In addition, the Act contains a new uniform definition of a qualifying child for purposes of the dependency deduction, the child credit, the child care credit, the earned income credit and for determining head of household status.

The American Jobs Creation Act of 2004—signed October 22, 2004

This is a massive tax bill. The actual statutory language covers more than 200 pages and touches almost every facet of Federal income taxation including individuals, businesses and tax-exempt organizations. There are many-many provisions which apply in very specific and limited situations. This summary covers only selected provisions of the act which will affect the largest number of my clients.

1. The Section 179 limitation for SUV’s has been reduced to $25,000 effective for vehicles placed in service after October 22, 2004
2. Deduction for State and Local General Sales Taxes.  For 2004 and 2005,     taxpayers may elect to take an itemized deduction for either a) state and local income taxes paid or b) state and local sales taxes paid. Tables will be provided by the IRS and taxpayers may add taxes paid for major purchases such as a boat or vehicle; or, you may accumulate receipts.
3. Required increased reporting for noncash charitable contributions. For property valued at more than $500, the individual must include with its return for the tax year of the contribution a written description of the donated property.
4. New Documentation for Charitable Contributions of Vehicles, Boats and Airplanes over $500.  After 2004, taxpayer must obtain a contemporaneous written acknowledgment for any qualified vehicle donation where the claimed amount exceeds $500. This acknowledgment must be attached to the taxpayer’s return. Further, is the vehicle is sold by the charity without any significant use or improvement of the vehicle, the acknowledgment must contain the selling price of the vehicle and notify the contributor that the charitable deduction may not exceed such selling price

Health Savings Accounts:

If you are not covered by an employer health insurance plan, these may be of interest.

1. You must be covered under a high deductible Health Plan
2. You must not be covered under an other Plan (some exceptions)
3. You can not be enrolled in Medicare
4. You can not be claimed as a Dependent on someone else’s return.

You may make tax deductible contributions to a Health Savings Account. There are limits on how much you may contribute based on whether you are married, single and over age 55.

The Health Savings Account can then make tax-free distributions to pay qualified medical expenses.

A number of health insurance companies are beginning to handle HSA’s. You may wish to contact your insurance agent.