Health Savings Accounts Health Savings Accounts

Effective 2004For individuals with high-deductible

health plansTax-deductible contributions Tax-free earningsTax-free distributions for qualified

medical expenses

Key Changes

Education DeductionsEducation Deductions

Tuition deduction increases from $3,000 to $4,000

Educators’ expenses deduction expired in 2003

Educators can still deduct qualified expenses as miscellaneous itemized deductions

Key Changes

Married filing jointly

Married filing separately

Single

Head of household

Qualifying widow(er)

The Basics

Filing StatusFiling Status

2004 Tax Rates2004 Tax Rates

10%15%25%30%33%35%

The Basics

Standard Deduction Standard Deduction

Filing StandardStatus

Deduction

Married filing jointly $ 9,700 Married filing separately $ 4,850 Single $ 4,850 Head of household $ 7,150 Qualifying widow(er) $ 9,700

The Basics

Standard DeductionStandard Deduction

Taxpayers 65 and older or blind getadditional standard deduction Married - $950Single or head of household - $1,200 Two additional standard deduction amounts for an individual who is BOTH blind and over age 65

The Basics

Itemizing DeductionsItemizing Deductions

An option to the standard deductionUse when these deductions exceed

standard deductionPhase-out rules apply

– Joint/head of household $142,700

– Married filing separately $71,350

The Basics

Personal ExemptionPersonal Exemption

Filing status Phase-out Phase-out starts ends

Joint return $214,050 $336,550 Heads of

household $178,350 $300,850 Single $142,700 $265,200 Married filing

separately $107,025 $168,275

The Basics

Timing StrategiesTiming Strategies

Control tax bill by --Deferring income, such as bonuses Accelerating deductions, such as

qualified charitable contributions Bunching deductions that are based

on a percentage of AGI

The Basics

Tax Strategies for LifeTax Strategies for Life

FamilyEducationHome InvestmentsRetirement

Family StrategiesFamily Strategies

Child CreditAdoption CreditDependent Care CreditEarned Income CreditShifting Income

Child Credit Child Credit

Child must be under 17 at year end Child must be claimed as dependent$1,000 credit per childReduces tax bill dollar-for-dollarPhase-out for higher income families

Family Strategies

Adoption CreditAdoption Credit

Credit of up to $10,390 per eligible child

Exemption for first $10,390 reimbursed by employer

Parents adopting special needs child get full credit

Family Strategies

Dependent CareDependent Care

Child must be under 13 and a dependent

Tax credit from 20% to 35% of qualifying expenses

Use up to $3,000 of expenses ($6,000 for two or more) to calculate credit

Not restricted to children

Family Strategies

Earned Income CreditEarned Income Credit

Family Size Maximum Credit

Two or more children $ 4,300One child $ 2,601No children $ 390

Family Strategies

Shifting IncomeShifting Income

Make gifts to childrenTransfer appreciated stock to childrenHire your child

Family Strategies

Tax CreditsTax Credits

Hope Credit worth up to $1,500 per student, per year

Applies to first two years of college only

Phase-out applies

Education Strategies

Tax CreditsTax Credits

Lifetime Learning Credit of up to $2,000 per year

Applies to undergraduate, graduate, and professional courses

Phase-out applies

Education Strategies

Tuition DeductionTuition Deduction

Maximum deduction of $4,000No need to itemizeCovers tuition and feesPhase-out applies

Education Strategies

Student Loan Deduction Student Loan Deduction

Deduct up to $2,500No need to itemizeNo limit on repayment period length$100,000 to $130,000 – Phase-out

range for married filing jointly $50,000 to $65,000 – Phase-out range

for single filers

Education Strategies

Deductions Deductions

Mortgage interest on first and second home

Up to $100,000 in home equity loan or line of credit interest

Points paid on mortgage or refinancing Real estate property taxes

Homeowner Strategies

DeductionsDeductions

Exclude up to $250,000 in capital gains from sale of home; $500,000 for joint filer

Must own and use home as principal residence for 2 years out of 5

Eligible only once every two yearsReduced exclusion available

Homeowner Strategies

DividendsDividends

Top dividend tax rate of 15%Rate is 5% for taxpayers in 10% and

15% bracketsCheck ex-dividend dateDoes not apply to interest payments

Investment Strategies

Capital Gains TaxCapital Gains Tax

Maximum tax rate on long-term gains is 15%

5% for taxpayers in 10% and 15% brackets

Asset must be held more than one year

Does not apply to collectibles

Investment Strategies

Offset Capital Gains with LossesOffset Capital Gains with Losses

Capital losses offset capital gains$3,000 ($1,500 for single filers) in net

capital losses can be deducted against ordinary income

Beware of wash sale rule

Investment Strategies

Employer PlansEmployer Plans

Contributions help reduce tax billTake advantage of employer matches$13,000 is 2004 maximum contribution$3,000 additional contribution for age

50 and older

Retirement Strategies

IRAsIRAs

$3,000 is maximum 2004 contribution$500 additional catch-up contribution

for age 50 or olderPhase-out ranges applyOpen by April 15, 2005

Retirement Strategies

StructureStructure

C CorporationS CorporationLimited Liability CompanyPartnershipSole proprietor

Business Strategies

Expensing DeductionExpensing Deduction

Deduct up to 100% of the cost of up to $102,000 in property

Applies to new or used propertyEquipment must be put into service by

Dec. 31, 2004Now applies to software

Business Strategies

Bonus DepreciationBonus Depreciation

Last chance for bonus depreciationDeduct 50% of the cost of assets that

exceed expensing deductionApplies to new – not used – propertyRemaining 50% subject to regular

depreciationProperty must be in service by

Dec. 31, 2004

Business Strategies

Additional Business Strategies Additional Business Strategies

Deduct 100% of health insurance costs if self-employedDefer income and accelerate deductionsWrite off bad debtsMake the most of business-related deductions – travel, auto, meals and entertainment, interest expenses

Charitable Deductions Charitable Deductions

Donate appreciated property and avoid capital gains tax

Donate clothing, household goods, furniture and deduct fair market value

Volunteer your time and deduct qualified travel and related expenses

Year-End Tips

FSAsFSAs

Reduce taxable incomePlan carefully – unused funds are

forfeitedUse up remaining 2004 balancesOver-the-counter drugs are now

allowable

Year-End Tips

Avoid AMTAvoid AMT

AMT triggers:Higher than average dependency

exemptionsLarge deductions for state and local

income taxesHigh miscellaneous itemized

deductions and medical expenses Incentive tax options

Year-End Tips

Training for SuccessTraining for Success

Focus on tax savings year-roundConsider year-end opportunities Get help if you need itDon’t wait until your tax return is due