Taxation Legal News

2004 Tax Law Changes

Education Incentives
The maximum Tuition and Fees Deduction is $4,000 for those with Adjusted Gross Income (AGI) up to $65,000 and $2,000 for those with an AGI over $65,000 but not over $80,000. These AGI amounts are doubled for married persons filing jointly.

Distributions from Qualified Tuition Plans (QTPs) maintained by private educational institutions are excludible up to the amount of qualified educational expenses. This tax break had been limited to State-sponsored QTPs.
Tax Credits

Tax Credits
The Additional Child Tax Credit is now refundable up to 15 percent of the amount by which earned income exceeds $10,750. The rate had been 10 percent. Taxpayers with more than two qualifying children may be eligible for a larger credit. Nontaxable combat pay counts as earned income when figuring this credit.

In computing the Earned Income Tax Credit, a taxpayer with nontaxable combat pay has the option of counting that pay as earned income, or omitting it. This has no effect on the amount of combat pay that is not taxed.
Retirement Plans / Individual Retirement Arrangements

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.

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	Did You Know?
	There are tax rules if change in accounting method is made Generally, the partnership must get IRS consent to change its method of accounting used to report income (for income as a whole or for any material item). To do so, it must file Form 3115, Application for Change in Accounting Method. See Form 3115 and Pub. 538, Accounting Periods and Methods.