Tax Law Changes : Tax-Year 2004

Health savings account (HSA) deduction

You may be able to take a deduction if contributions (other than employer contributions) were made to your HSA for 2004.

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Tuition and fees deduction expanded

You may be able to deduct up to $4,000 if your adjusted gross income (AGI) is not more than $65,000 ($130,000 if married filing jointly), or deduct up to $2,000 if your AGI is higher than the limit but not more than $80,000 ($160,000 if married filing jointly).

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Sales tax deduction

You can elect to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A. Generally, you can use either your actual expenses or the Optional State Sales Tax Tables to figure your state and local general sales tax deduction.

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Unlawful discrimination claims

You may be able to take a deduction on line 35 for attorney fees and court costs paid after October 22, 2004, for actions settled or decided after that date involving a claim of unlawful discrimination, a claim against the United States Government, or a claim made under section 1862(b)(3)(A) of the Social Security Act, but only up to the amount included in gross income in 2004 from such claim.

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IRA deduction allowed to more people covered by retirement plans

You may be able to take an IRA deduction if you were covered by a retirement plan and your modified AGI is less than $55,000 ($75,000 if married filing jointly or qualifying widow(er)).

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Certain business expenses of reservists, performing artists, and fee-basis government officials

These expenses are now reported on line 24.

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Earned income credit (EIC)

You may be able to take the EIC if:

• A child lived with you and you earned less than $34,458 ($35,458 if married filing jointly), or
• A child did not live with you and you earned less than $11,490 ($12,490 if married filing jointly).

If you were a member of the U.S. Armed Forces who served in a combat zone, you may be able to include your non-taxable combat pay in earned income when figuring the EIC.

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Additional child tax credit expanded

The credit limit based on earned income is increased to 15% of your earned income that exceeds $10,750. If you were a member of the U.S. Armed Forces who served in a combat zone, your nontaxable combat pay counts as earned income when figuring this credit limit.

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Standard mileage rates

The 2004 rate for business use of your vehicle is 37.5 cents a mile. The 2004 rate for use of your vehicle to get medical care or to move is 14 cents a mile.

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Qualified tuition program (QTP) distributions

You may be able to exclude from income distributions from a private QTP if the distributions are not more than your qualified higher education expenses.