TAX BRACKETS ARE EXPANDED:
The marriage penalty is further lifted so that the 10% tax bracket now is moved to $14,600 MFJ, $7300 Single. 15% tax bracket is now increased to $59,400 MFJ and $29,700 Single

ELECTIVE DEFERRALS ON SIMPLE AND 401K:
Effective for 2005, maximum elective deferral on 401k plans: $14,000 under age 50 and $18,000 50 or over. Simple plans underage 50 $10,000, age 50 or older, $12,000.

ADDITIONAL CHILD TAX CREDIT:
For taxpayers with one or more qualifying children, the additional child tax credit is the smaller of (1) the amount of the child tax credit remaining after reducing regular tax and AMT to zero or (2) 15% of the taxpayers earned income in excess of $10,750.

ADDITIONAL CHILD TAX CREDIT-COMBAT PAY TREATED AS EARNED INCOME:
For purposes of calculating the additional child tax credit based upon 15% of the taxpayers earned income in excess of $10,750, excluded combat pay is treated as earned income to increase the eligible credit amount.

ALTERNATIVE MINIMUM TAX:
The maximum AMT exemption amounts for 2003, 2004 and 2005 are $40,250 SINGLE or HOH, $58,000 MFJ OR QW, and $29,000 MFS. The amounts are scheduled to drop in 2006 to the pre 2001 amounts.

ARMED FORCES AND RESERVISTS:
National guard members and Armed Forces reservists who must travel more than 100 miles away from home and stay overnight to fulfill their training and service commitments can claim an above the line deduction for the cost of transportation, meals (subject to 50%) and lodging. The deductible amounts are limited to general federal government per diem amounts for the applicable locale. The deductions is taken on line 24 form 1040 and is included with the special deduction rules for government fee basis officials, qualified performing artists and disabled employees with impairment-related work expenses.

CHARITABLE CONTRIBUTIONS OF CARS, BOATS AND PLANES:
The charitable contributions deduction for vehicles depends on the use of the vehicle by the charitable organization to which it was donated. EFFECTIVE 2005. If the charity sells the vehicle without any significant use or making improvements, the donors deductions is limited to the gross proceeds from the sale by the charity. If the charity uses or improves the vehicle, the charity must estimate the market value at the time of the donation. Contributions for which the claimed value exceeds $500 require written acknowledgment from the charity and the taxpayer must attach it to the return.

CHILD TAX CREDIT:
The child tax credit equals $1000 per qualifying child.

COLLECTIONS:
The IRS can now use private collection agencies to collect federal taxes.

COMPUTER SOFTWARE, SECTION 179 DEDUCTIONS:
The cost of the off the shelf software is now eligible for Section 179 deduction.

DEPRECIATION OF LEASEHOLD IMPROVEMENTS AND RESTAURANT PROPERTY:
Leasehold improvements to non residential real property(whether leased or owned by the taxpayer)are now eligible for 15 year recovery period. The straight line method must be used. Qualified restaurant property means any improvement to a building if the improvement was placed in service more than 3 years after the building was first placed into service and more than 60% of the buildings square footage is devoted to food preparation and seating for customers. Since qualified restaurant property now has a 15 year recovery period, improvements prior to 2005 also qualify for the 50% special depreciation allowance. After 10/22/2004.

DIVIDEND HOLDING PERIOD:
Tax on qualified stock dividends is the same rate as long term capital gains provided that the stock was held at least 61 days during the 121 day period beginning 60 days before the ex-dividend date. Retro back to 2003.

DIVORCE-S CORPORATION LOSSES:
If an S corporation has a suspended loss due to the basis limitation, the loss can be transferred to a spouse or former spouse in a divorce.

EARNED INCOME CREDIT-ELECT TO TREAT COMBAT PAY AS EARNED INCOME:
A taxpayer may elect to treat combat pay excluded from gross income as earned income for purposes of calculating the Earned Income Credit. 2004 and 2005 only.

EDUCATOR EXPENSES:
The $250 above the line deduction allowed for certain classroom expenses of elementary and secondary school teachers is extended two more years.

EMPLOYEE STOCK OPTIONS:
There will be no FICA OR FUTA accessed on an employee who exercises a statutory stock option or when an employee sells stock that was acquired by exercising a statutory stock option. The new law becomes part of the tax code and is permanent.

EXCISE TAX ON INSIDER STOCK COMPENSATION FROM AN EXPATRIATED CORP:
A 15% excise tax may be due on the value of non statutory stock options and certain other stock based compensation from an expatriated corporation in which the taxpayer was an officer, director or more than 10% owner.

HEALTH SAVINGS ACCOUNTS:
An eligible individual covered by a high deductible health plan can establish and make deductible contributions to an HSA which is an IRA type savings plan for medical costs not covered by insurance distributions from the plan are tax free provided they are used to pay for medical expenses. 2004 contributions are limited to the lessor of the anticipated deductible or $2600 ($3000 age 50 or older)for self only coverage or $5,150 ($5,650 age 50 or older) for family coverage. Minimum annual deductibles are $1000 for individual coverage and $2000 for family coverage. Maximum annual deductible and out of pocket expenses are $5000 for individual coverage and $10000 for family coverage.

INCOME AVERAGING FOR FARMERS AND FISHERMEN:
Fishermen can now elect to use Income averaging on Schedule J to reduce taxes. The calculation of AMT for farmers and fishermen using the income averaging method has also changed. When regular tax is reduced by using income averaging, the potential for being subject to AMT has increased. However, under the new rules, income averaging is coordinated with the AMT rules to prevent the use of averaging from increasing the taxpayers exposed to AMT.

LIKE KIND EXCHANGE DEPRECIATION RULES:
When a taxpayer acquires a new depreciable asset through a like kind exchange. The new property is treated as being comprised of two separate components (1) the exchange of basis and (2) the excess basis if any. The exchanged basis is generally the lessor of the basis of the replacement property or the adjusted basis of the relinquished property, if less. The excess basis is the excess of the basis in the replacement property over the exchanged basis. The new regulations also determine the applicable recovery period and depreciation method for the property at the time of the exchange. An election is available for taxpayers to elect out of the like kind exchange rules. In which case, the exchanged basis and excess basis are treated as being placed in service at the time of the exchange and the adjusted depreciable basis of the relinquished property is treated as being disposed of by the taxpayer.

LUXURY AUTO DEPRECIATION RULES:
The first year depreciation limitation for autos is $109,610 if the 50% special depreciation allowance is claimed and $2960 if it is not. For trucks and vans, the limit is $10,910 if the 50% special depreciation allowance is claimed and $3260 if it is not. Autos rated at more than 6000 pounds unloaded gross vehicle weight, and trucks and vans rated at more than 6000 pounds loaded gross vehicle weight are not subject to theses limits. Separate limits also apply to qualified electric vehicles and leased vehicles.

MEDICAL SAVINGS ACCOUNTS:
The cut off year for setting up new MSA accounts extend to 2005. Taxpayers may continue to contribute to existing MSA’s after the cut off year, but cannot set up new MSA’s after the cut off year. The 2004 minimum annual deductible is $1700 for individual coverage and $3450 for family coverage. The 2004 maximum deductible is $2600 for individual coverage and $5150 for family coverage. Out of pocket expense limits are $3450 for individual coverage and $6300 for family coverage. The maximum annual contribution equals 65% of the deductible individual coverage and 75% of the deducible for family coverage.

MEDICAL PRESCRIPTION DRUGS:
Discount drug cards may provide discounts from 11 to 13% on many brand name drugs and more on generic drugs. Most with medicare coverage can get a discount card except for those who currently have outpatient prescriptions drug coverage under medicaid.. A $30 enrollment fee applies to all but low income enrollees. Single taxpayers with 2004 income less than $12,569 and married taxpayers with 2004 income less than $16852 may qualify for a $600 credit on a Medicare approved drug discount card. Beginning in 2006, Medicare has a new prescription drug benefit program designed to help cover a portion of the amount recipients pay on prescription drugs.

NEW SCHEDULE K-1:
A new revised one page Schedule K-1 was designed to be a simplified format now with 95 different codes designed on page 2 to identify the meaning of the numbers reported. The new format will help IRS with their computer matching of K-1 information to the 1040.

NONREFUNDABLE PERSONAL CREDITS:
The aggregate amount of the non refundable personal credits are allowed to offset both regular and AMT during tax years 2000 through 2005. Non refundable personal credits include the child and dependent care expenses, credit for the elderly, adoption expenses credit, child tax credit, mortgage interest credit, hope and lifetime learning credits and credit for elective deferrals and IRA contributions.

ORGANIZATIONAL AND START UP COSTS:
Taxpayers can elect to deduct up to $5000 of the start up and up to $5000 of the organizational costs in the tax year the trade or business begins. In the tax year the trade or business begins, each $5000 allowance is reduced by the amount of cumulative start up or organizational costs in excess of $50,000. Start up and organizational costs that are not deductible in the year the trade or business begins, must be capitalized and amortized over 15 year on a straight line basis. Taxpayers can still elect to amortize start up and organizational costs incurred on or before 10/22/2004 over 60 months. However , all start up and organizational costs related to a particular trade or business are counted in determining whether cumulative costs exceed $50,000. 10/22/2004

QUALIFIED ELECTRIC VEHICLE AND CLEAN FUEL VEHICLE DEDUCTION:
The phase out of the QEV credit and clean fuel vehicle deduction in 2004 and 2005 is eliminated. A taxpayer who is the original purchaser and user of a QEV is allowed a credit of 10% of the cost of the vehicle up to $4,000. For the original purchaser and user of the clean fuel vehicle, the taxpayer can deduct $2000 for vehicles with gross vehicle weight of 10,600 pounds or less. The 75% phase out of the credit and deduction for 2006 still applies. 2004-2005

QUALIFIED TUITION PROGRAMS:
Distributions from private QTP’S (Non state sponsored QTP's) are now eligible to be excluded from income When distributions are not more than qualified higher education expenses (same rule as state sponsored QTP’s)

RURAL MAIL CARRIER EXPENSES:
If expenses incurred by an employee of the US POSTAL SERVICE as a rural mail carrier for the use of a vehicle exceed qualified reimbursements for such expenses, the excess is deductible as a miscellaneous itemized deduction subject to a 2% AGI limitation. 2004

SALE OF RESIDENCE ACQUIRED IN LIKE KIND EXCHANGE:
The section 121 exclusion on a sale of a principal residence does not apply if the taxpayer sells the home within 5 years of acquiring the property through a like kind exchange. 10/22/2004

SALES TAX DEDUCTION:
Sales tax is now deductible on Schedule A. Taxpayers can elect to deduct state, local and general sales taxes INSTEAD of state and local INCOME TAXES PAID. Taxpayers cannot deduct both. If sales taxes produces a larger deduction, check box b on line 5 of Sch. A. The optional sales tax tables can be used to determine applicable deduction of sales taxes for each state.

SECTION 179 DEDUCTION-ABILITY TO MAKE OR REVOKE ELECTION:
The section 179 deduction can now be made or revoked on an amended return. In the past, only current year tax returns timely filed could make the section 179 election. Now, if the 179 election was missed, the amended return can be filed making the election available in a prior tax year. 2003

SECTION 179 DEDUCTION ON SUVS:
The section 179 deduction is limited to $25,000 for SUV's that are not subject to the Section 280F luxury auto depreciation limits. 10/22/2004

STANDARD DEDUCTIONS MARRIAGE PENALTY RELIEF:
The standard deduction for MFJ is increased to 200% of the single standard deduction or $10,000.

STANDARD MILEAGE RATES:
The standard mileage rate for business is 37.5 cents per mile, 14 cents per mile for charitable mileage, medical or moving, 16cents per mile for the depreciable component of the standard mileage rate. For 2005, the standard mileage rate for business is 40.5 cents per mile.

TIMBER SALES:
Outright sales of standing timber qualify for capital gain treatment. The owner no longer needs to retain an economic interest in the timer for capital gain treatment. 2005

TUITION AND FEES DEDUCTION:
Deduction increases to $4000, if AGI is not more than $65,000 ($130,000 MFJ). Deduction is $2000, if AGI is higher than $65,000 but not more than $80,000 single ($160,000 MFJ). 2004

UNIFORM DEFINITION OF A QUALIFIED CHILD:
The new uniform definition of a child applies for purposes of the dependency exemption , child tax credit, eic, dependent care credit, HOH filing status. 2005

UNLAWFUL DISCRIMINATION CLAIMS:
A deduction on line 35 can be taken for attorney fees and court costs paid for actions settled or decided after the date involving a claim of unlawful discrimination. 10/22/2004