Health Savings Accounts  Effective 2004  For individuals with high-deductible health plans  Tax-deductible contributions  Tax-free earnings  Tax-free distributions for qualified medical expenses Key Changes

Education Deductions  Tuition deduction increases from $3,000 to $4,000  Educators’ expenses deduction expired in 2003  Educators can still deduct qualified expenses as miscellaneous itemized deductions Key Changes

 Married filing jointly  Married filing separately  Single  Head of household  Qualifying widow(er) The Basics Filing Status

2004 Tax Rates  10%  15%  25%  30%  33%  35% The Basics

Standard Deduction Filing Standard Status Deduction  Married filing jointly$ 9,700  Married filing separately$ 4,850  Single$ 4,850  Head of household$ 7,150  Qualifying widow(er)$ 9,700 The Basics

Standard Deduction Taxpayers 65 and older or blind get additional standard deduction  Married - $950  Single or head of household - $1,200  Two additional standard deduction amounts for an individual who is BOTH blind and over age 65 The Basics

Itemizing Deductions  An option to the standard deduction  Use when these deductions exceed standard deduction  Phase-out rules apply –Joint/head of household $142,700 –Married filing separately $71,350 The Basics

Personal Exemption Filing status Phase-out Phase-out starts ends  Joint return $214,050$336,550  Heads of household $178,350$300,850  Single $142,700$265,200  Married filing separately $107,025$168,275 The Basics

Timing Strategies Control tax bill by --  Deferring income, such as bonuses  Accelerating deductions, such as qualified charitable contributions  Bunching deductions that are based on a percentage of AGI The Basics

Tax Strategies for Life  Family  Education  Home  Investments  Retirement

Family Strategies  Child Credit  Adoption Credit  Dependent Care Credit  Earned Income Credit  Shifting Income

Child Credit  Child must be under 17 at year end  Child must be claimed as dependent  $1,000 credit per child  Reduces tax bill dollar-for-dollar  Phase-out for higher income families Family Strategies

Adoption Credit  Credit of up to $10,390 per eligible child  Exemption for first $10,390 reimbursed by employer  Parents adopting special needs child get full credit Family Strategies

Dependent Care  Child must be under 13 and a dependent  Tax credit from 20% to 35% of qualifying expenses  Use up to $3,000 of expenses ($6,000 for two or more) to calculate credit  Not restricted to children Family Strategies

Earned Income Credit Family Size Maximum Credit  Two or more children$ 4,300  One child$ 2,601  No children$ 390 Family Strategies

Shifting Income  Make gifts to children  Transfer appreciated stock to children  Hire your child Family Strategies

Tax Credits  Hope Credit worth up to $1,500 per student, per year  Applies to first two years of college only  Phase-out applies Education Strategies

Tax Credits  Lifetime Learning Credit of up to $2,000 per year  Applies to undergraduate, graduate, and professional courses  Phase-out applies Education Strategies

Tuition Deduction  Maximum deduction of $4,000  No need to itemize  Covers tuition and fees  Phase-out applies Education Strategies

Student Loan Deduction  Deduct up to $2,500  No need to itemize  No limit on repayment period length  $100,000 to $130,000 – Phase-out range for married filing jointly  $50,000 to $65,000 – Phase-out range for single filers Education Strategies

Deductions  Mortgage interest on first and second home  Up to $100,000 in home equity loan or line of credit interest  Points paid on mortgage or refinancing  Real estate property taxes Homeowner Strategies

Deductions  Exclude up to $250,000 in capital gains from sale of home; $500,000 for joint filer  Must own and use home as principal residence for 2 years out of 5  Eligible only once every two years  Reduced exclusion available Homeowner Strategies

Dividends  Top dividend tax rate of 15%  Rate is 5% for taxpayers in 10% and 15% brackets  Check ex-dividend date  Does not apply to interest payments Investment Strategies

Capital Gains Tax  Maximum tax rate on long-term gains is 15%  5% for taxpayers in 10% and 15% brackets  Asset must be held more than one year  Does not apply to collectibles Investment Strategies

Offset Capital Gains with Losses  Capital losses offset capital gains  $3,000 ($1,500 for single filers) in net capital losses can be deducted against ordinary income  Beware of wash sale rule Investment Strategies

Employer Plans  Contributions help reduce tax bill  Take advantage of employer matches  $13,000 is 2004 maximum contribution  $3,000 additional contribution for age 50 and older Retirement Strategies

IRAs  $3,000 is maximum 2004 contribution  $500 additional catch-up contribution for age 50 or older  Phase-out ranges apply  Open by April 15, 2005 Retirement Strategies

Structure  C Corporation  S Corporation  Limited Liability Company  Partnership  Sole proprietor Business Strategies

Expensing Deduction  Deduct up to 100% of the cost of up to $102,000 in property  Applies to new or used property  Equipment must be put into service by Dec. 31, 2004  Now applies to software Business Strategies

Bonus Depreciation  Last chance for bonus depreciation  Deduct 50% of the cost of assets that exceed expensing deduction  Applies to new – not used – property  Remaining 50% subject to regular depreciation  Property must be in service by Dec. 31, 2004 Business Strategies

Additional Business Strategies  Deduct 100% of health insurance costs if self-employed  Defer income and accelerate deductions  Write off bad debts  Make the most of business-related deductions – travel, auto, meals and entertainment, interest expenses

Charitable Deductions  Donate appreciated property and avoid capital gains tax  Donate clothing, household goods, furniture and deduct fair market value  Volunteer your time and deduct qualified travel and related expenses Year-End Tips

FSAs  Reduce taxable income  Plan carefully – unused funds are forfeited  Use up remaining 2004 balances  Over-the-counter drugs are now allowable Year-End Tips

Avoid AMT AMT triggers:  Higher than average dependency exemptions  Large deductions for state and local income taxes  High miscellaneous itemized deductions and medical expenses  Incentive tax options Year-End Tips

Training for Success  Focus on tax savings year-round  Consider year-end opportunities  Get help if you need it  Don’t wait until your tax return is due