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RECENT TAX LAW CHANGES
Andrew D. Schwartz, CPA
weeks after signing the Working Families Tax Relief Act of 2004 into law
(discussed in our
2004 newsletter), President Bush signed the American Job Creations
Act of 2004 on October 22nd. Here are some of the provisions
from that Tax Act that might affect you:
Rules For Donating an Auto: Effective January 1, 2005, the amount you
can deduct when donating a vehicle is limited to what the charitable
organization sells it for, and not its “Blue Book” value. The charity is
required to provide you with this information. If donating a car is in
your plans for 2005, consider doing so before December 31, 2004.
(See below to find out more about this new rule.)
Sales Tax Deduction: It hasn’t been since the 1986 Tax Act that you
could deduct your sales taxes paid. For 2004 and 2005, you can choose
between deducting either your state and local income taxes or your sales
taxes paid during the year. You’ll base this new deduction on actual
receipts or on IRS tables.
Reduced Hummer Deduction: For purchases of SUVs with gross
loaded weight in excess of 6,000 pounds made after October 22nd,
the maximum write-off you can claim is limited to $25,000 multiplied by
the vehicle's business use percentage.
Extension: You now have through 2007 to write-off up to $100,000 of
equipment purchases made during the year. Previously, the 179 deduction
was scheduled to decrease to $25,000 in 2006.
President Bush winning the November 2nd election, and a
Republican Congress in place, expect to see lots more changes to our tax
code during the next four years.
New Rules for Deducting Vehicle Donations
As part of
this Tax Act, Congress
has provided the IRS with another means of ensuring that taxpayers don't
exaggerate their deductions.
past, people who donated a vehicle worth less than $5,000 were allowed to
determine the fair value of the donated car themselves, and usually based the deduction
on the vehicle's "Blue Book" value. Only those taxpayers who wanted to
deduct more than $5,000 were required to obtain a written appraisal to
attach to their tax return.
January 1, 2005, basing the value of your donated vehicle on the Blue Book
value is no longer allowed. Instead, the deduction you can claim is
limited to what the organization sells the vehicle for. The charity
has 30 days from the date of sale to report that information to you.
any exceptions? Of course. If the
charity intends to use the vehicle for its own use, or refurbish the vehicle
before selling it, the old rules apply. That means that you can once
again determine the auto's fair market value. The
only catch is that the charity must provide you with certification of its intentions.
And don't forget that you need to obtain a written appraisal if you want to
claim a deduction in excess of $5,000.
STEPS TO CUT YOUR 2004 TAX BILL
Andrew D. Schwartz, CPA
It's not too late
to cut your 2004 tax bill. Prior to December 31st:
Increase your 401(k) and 403(b)
contributions if you haven't been contributing at the maximum rate all
year. This year you can put away up to $13,000 ($16,000 if 50 or
older) into your 401(k) or 403(b)
plan. If you’re self-employed, consider setting up a Solo 401(k) by
Take a look at your
withholding and instruct your employer to withhold additional taxes if
you haven’t had enough taxes withheld during the year to avoid getting hit
with an underpayment penalty.
Consider selling your
non-retirement investments that have decreased in value since your
capital losses can offset other capital gains realized during the year
(including from your mutual funds), and then can be used to offset up to
$3,000 of wages and other income.
Send in your January,
2005 mortgage payment early enough so it will be processed prior to
12/31/04. By sending in your payment a few weeks early, you can deduct
the interest portion of that payment a full year earlier.
Clean out your closets
and donate your clothing and household items to a charitable organization
since "non-cash" contributions are deductible if you itemize. Don’t
forget to get a receipt. For gifts of money,
making your donation by credit card before December 31st allows you to
deduct the donation on this year's return, even if you don't pay your
credit card bill until 2005.
Pre-pay your projected
state tax shortfall if you'll be itemizing your deductions and won't
subject to the alternative minimum tax.
Pay off your medical
bills if your total medical expenses exceed 7.5% of your income and
Evaluate whether you'll
save any taxes by postponing 2004 income or deductions into 2005 or by
accelerating 2005 income or deductions into 2004.
TAX AND FINANCIAL PLANNING CALENDAR FOR
Saving and Investing
Keogh plans and Solo 401(k)'s must be established by 12/31
529 Plans must be funded by 12/31
Last chance to maximize annual contribution to your
401(k) or 403(b) plan of up to $13,000.
- For 2004 the standard deduction for a single individual is
$4,850 and for a married couple is $9,700. A person will benefit by
itemizing once allowable deductions exceed the applicable standard deduction.
Itemized deductions include state and local income taxes (or sales taxes), real estate taxes,
mortgage interest, charitable contributions, and unreimbursed employee business
expenses. Our March, 1998
newsletter addressed the issue of itemizing your deductions.
- For 2004,
the personal exemption is $3,100. Individuals will claim a
personal deduction for themselves, their spouse, and their dependents.
- The maximum earnings subject to social security taxes will be $90,000 for 2005
up from $87,900 in 2004.
- The standard mileage rate is $.375 per mile for 2004, and will
increase to $.405 per mile for 2005. Deducting automobile expenses was
addressed in our March, 1996
- The maximum annual contribution to a 401(k) plan or a
403(b) plan is $13,000 for 2004.
And if you'll be 50 or older by December 31, 2004, you can contribute an extra
$3,000 into your 401(k) or 403(b) account this year. For 2005, you can
contribute $14,000 ($18,000 if 50 or older) into your 401(k) or 403(b) account
- The maximum annual contribution to your IRA is $3,000 for
And once you turn 50, you can contribute an extra
$500 into your IRA this year. For 2005, you can contribute up to $4,000
($4,500 if 50 or older) into your IRA.
copyright - 2004 - The MDTAXES Network
Tax and financial planning calendar for December, 2004
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