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Tax Highlights
Some will require action on your part for you to benefit!
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State Taxes By State >
Changes For 2004
Income-Tax Rates:
Income Tax Rates are the same as last year; however, the income
thresholds once again rose to reflect inflation.
A married couple filing jointly with total taxable income of
$100,00 would pay about $145 less in federal income tax in
2004. However, many states and cities have
raised taxes due to a decline in federal matching funds.
Income Tax 2003/04 |
Band |
%Rate |
0 - 1,960 |
10 |
1,961 - 30,500 |
22 * |
Over 30,500 |
40 ** |
* Except dividends 10% and savings
income 20%.
** Except dividends 32.5%.
Other income taxed first, then savings income and
finally dividends
|
For more details, go to the IRS site
www.irs.gov
Standard Deduction:
For married couples filing jointly, the standard deduction
rose from $9,500 for 2003 to $9,700 this year.
For most singles, it rose to $4,850 from $4,750.
Instead of itemizing, nearly two-thirds of all tax filers
claim the standard deduction each year.
Filling status |
Amount |
Married filling jointly or
qualifying widow(er) |
$9,700 |
Heads of Household |
$7,150 |
Singles |
$4,850 |
Married filling separately |
$4,850 |
An additional $950 standard deduction may be
claimed by a married taxpayer ($1,150 by a single taxpayer)
who is at least 65 years old or blind. A further
$1,900 ($2,300 by a single taxpayer) standard deduction can
be claimed if the taxpayer is at least 65 years old and
blind. A
taxpayer benefits from itemizing deductions only if they
exceed the standard deduction.
Child Tax Credit:
The $600
child tax credit increases to $1,000 for 2003 and 2004.
For 2003, the
increased amount of the child care credit (up to $400, which
is the new amount of $1,000 for 2003 less the previous
maximum of $600) will be paid in advance, beginning in July,
based on the information contained in the taxpayer's return
for 2002. This credit is available for a child not yet age
17-so for the additional maximum of $400, it is available
only if the children are not yet age 17 at Dec. 31, 2003.
Notice that this refund, to be received in 2003, is based on
the 2002 tax information, but is based on 2003 law. This
means that when you file your 2003 tax return, you will have
already received the "extra $400" through this advance
rebate.
Retirement Savings:
From 2002 through 2006 l ower-income taxpayers will be eligible for a
nonrefundable credit for contributions to certain retirement plans. The
qualifying plans are IRAs (both traditional and Roth), 401K elective
contributions, Sec. 457 plans, SIMPLE or SEP plans, and voluntary after
tax employee contributions to qualified retirement plans.
After 2005,
401K or 403B annuity plans
will be allowed to include a qualified Roth contribution
program. This would allow the taxpayer to designate a
portion of their elective deferral as a Roth contribution.
This portion of their deferral would be taxed to them
currently. The distributions from this portion of their
program would be entirely tax -free.
IRA Contribution Limits Increased:
2002-2003 |
$3,000 |
2005-2007 |
$4,000 |
2008 |
$5,000 |
Catch-up contributions
for tax payers over age 50 (an additional contribution
allowed):
2002-2004 |
$ 500 |
2006 |
$1,000 |
This year, you can contribute as much as $13,000 to your
401(k)
if you’re under 50.
That’s up from $12,000 for 2003.
If you’re 50 or older any time this year, the contribution
limit is $16,000, up from $14,000 in 2003.
401K & 403B Deferral Limits Increased:
2002 |
$11,000 |
2003 |
$12,000 |
2004 |
$13,000 |
2005 |
$14,000 |
2006 |
$15,000 |
2007 and Later Inflation Adjustment.
Will Be In $500 Increments. |
Simple Plans:
2002 |
$ 7,000 |
2003 |
$ 8,000 |
2004 |
$ 9,000 |
2005 |
$10,000 |
Catch-up contributions to 401K, 403B and SIMPLE plans
allowed for tax payers age 50 and over as follows:
Federal Estate Taxes:
An estate consists of all the property
owned by a person. An estate includes such property as:
Real property
and things attached to it (houses,
buildings etc.)
Personal property
including: automobiles, bank accounts, stocks and bonds, cash on hand,
furniture and furnishings, jewelry, art, collections,
retirement plan benefits, etc.
Businesses as well as business property:
sole proprietorships, partnerships,
corporations, joint ventures, and their goodwill, inventory,
tools and equipment, accounts receivable, and other business
property, etc.
Debts
and obligations owed to
others.
The basic estate-tax exclusion jumped to $1.5 million from
$1 million in 2003. The top rate fell to 48% from 49%.
Phase In of Estate Tax Rate
Changes:
Year |
Maximum
Estate Tax Rate |
Estate
Tax Exclusion Amount |
Estate
Tax Unified Credit |
Gift Tax
Unified Credit |
Gift Tax
Exclusion Amount |
GST
Exemption |
2001 |
55% (plus 5% surcharge) |
$675,000 |
$220,550 |
$220,550 |
$675,000 |
$1,060,000 |
2002 |
50% |
$1 million |
$345,800 |
$345,800 |
$1 million |
$1,100,000 |
2003 |
49% |
$1 million |
$345,800 |
$345,800 |
$1 million |
$1,120,000 |
2004 |
48% |
$1.5 million |
$555,800 |
$345,800 |
$1 million |
$1.5 million |
2005 |
47% |
$1.5 million |
$555,800 |
$345,800 |
$1 million |
$1.5 million |
2006 |
46% |
$2 million |
$780,800 |
$345,800 |
$1 million |
$2 million |
2007 |
45% |
$2 million |
$780,800 |
$345,800 |
$1 million |
$2 million |
2008 |
45% |
$2 million |
$780,800 |
$345,800 |
$1 million |
$2 million |
2009 |
45% |
$3.5 million |
$1,455,800 |
$345,800 |
$1 million |
$3.5 million |
2010 |
35% (gift tax only) |
estate tax repealed |
estate tax repealed |
$345,800 |
$1 million |
GST tax repealed |
2011 |
55% (plus 5% surcharge) |
$1 million |
$345,800 |
$345,800 |
$1 million |
$1,060,000 |
Mileage Rate:
The standard mileage rate for business use of your car rose
to 37.5 cents a mile from 36 cents a mile in 2003.
That rate also applies to vans, pickups or panel
trucks. The IRS also announced that taxpayers, who use no
more than four vehicles at the same time for business
purposes, could use the standard mileage rate, starting in
2004. Currently, those using more than one vehicle at a time
cannot use the standard rate at all, leaving them to track
the actual expenses for each vehicle.
An estimated 800,000
businesses will become eligible to use the standard mileage
rate.
A taxpayer may not use the standard mileage rate
for a vehicle after using any depreciation method under the
Modified Accelerated Cost Recovery System (MACRS), after
claiming a Section 179 deduction for that vehicle, or for
any vehicle used for hire.
Beginning Jan. 1, 2004 ,
the standard mileage rates for the use of a car (including
vans, pickups, or panel trucks) will be as follows:
- 37.5 cents a
mile for all business miles driven, up from 36 cents a
mile in 2003;
- 14 cents a
mile when computing deductible medical or moving
expenses, up from 12 cents a mile in 2003; and
- 14 cents a
mile when giving services to a charitable organization.
Health Savings Accounts
the New Medicare Law
HSAs are accounts, similar
to IRAs, to which individuals can make tax-deductible cash
contributions that can then be used to reimburse an
individual for qualifying medical expenses tax-free.
Withdrawals for purposes other than qualifying medical
expenses will be subject to income taxes and, in most cases,
penalty taxes. Qualifying medical expenses include amounts
paid for "medical care" as defined in Internal Revenue Code
Section 213(d). That includes deductibles and co-payments
under a health plan, as well as expenses not covered under
the health plan (e.g., vision care, dental care,
over-the-counter medications, etc.). Health insurance
premiums generally are not qualifying medical expenses for
HSA purposes, but HSAs can reimburse premiums for COBRA
continuation coverage, for qualified long-term care
insurance, for health coverage while receiving unemployment
compensation benefits, or for health insurance other than a
Medicare supplemental policy covering Medicare eligible HSA
beneficiaries.
Only individuals not yet
eligible for Medicare who are covered under a "high
deductible" health plan and not covered by any other health
plan, such as the plan of a spouse's employer will be
allowed to contribute to an HSA. A health plan will qualify
as a "high deductible" health plan if it has a deductible of
at least $1,000 and an out-of-pocket maximum of not more
than $5,000 for single coverage, and a deductible of at
least $2,000 and an out-of-pocket maximum of not more than
$10,000 for family coverage.
The HSA maximum contribution
permitted each year will be the amount of the annual
deductible under the health plan or, if less, $2,250 for
individual coverage or $4,500 for family coverage. Catch-up
HSA contribution for individuals who will be age 55 or older
by the end of the year, which starts at $500 in 2004 and
will increase by $100 each year until reaching $1,000 in
2009. These amounts other than the catch-up limits are
indexed for inflation.
There is no annual "use-it-or-lose-it" requirement. Investment earnings on an HSA account
also accumulate tax-exempt, if used for qualifying medical
expenses.
Author’s note:
The intent of
termlifeamerica.com is to inform and
motivate the general public into action. One should consider only a qualified
practicing legal individual or entity; in the state
in which you reside for tax advice.
TermLifeAmerica.com-
Lewis Fink is licensed as an insurance agent
offering Life Insurance in the following states:
Alabama - AL,
Arkansas - AR,
California - CA,
Colorado - CO,
Connecticut - CT,
Delaware - DE, District of Columbia - DC,
Florida - FL,
Georgia - GA,
Idaho - ID,
Illinois - IL,
Indiana - IN,
Iowa - IA,
Kansas - KS,
Kentucky - KY,
Louisiana - LA,
Maine - ME,
Maryland - MD,
Massachusetts - MA,
Michigan - MI,
Mississippi - MS,
Missouri - MO,
Montana - MT,
Nebraska - NE,
New Mexico - NM,
New Jersey - NJ,
New York - NY,
North Carolina - NC,
North Dakota - ND,
Ohio - OH,
Oklahoma - OK,
Pennsylvania - PA,
Rhode Island - RI,
South Carolina - SC,
South Dakota - SD,
Tennessee - TN,
Texas - TX,
Utah - UT,
Vermont - VT,
Virginia - VA, and
Wisconsin - WI.
Not all insurance products from all insurance companies are available in
all states.
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