 | Educators’ Deduction — This had
expired at the end of 2003, but was restored for two
more years.
IR-2004-124 has more information.
|
| Clean Fuel Vehicle Deduction —
The maximum amount of this deduction was scheduled
to drop this year and next, but has been retained at
the $2,000 level through 2005.
IR-2004-125 has information on this deduction
and the newest vehicle to qualify for it.
|
| Child Tax Credit — Taxpayers with
a credit amount more than their tax could get a
refund of the difference, up to 10% of the amount by
which their 2004 taxable earned income exceeds
$10,750. This percentage was raised to 15% for 2004,
meaning a larger refund for many of these taxpayers.
|
| Combat Pay — Some military
personnel receiving combat pay get larger tax
credits because of two law changes. The new law
counts excludable combat pay as income when figuring
the Child Tax Credit and gives the taxpayer the
option of counting or ignoring combat pay as income
when figuring the Earned Income Tax Credit. Counting
combat pay as income when calculating these credits
does not change the exclusion of combat pay from
taxable income.
For more about the effect of excludable income on
the EITC, see
Q&A-37 in Miscellaneous Provisions - Combat Zone
Service.
For more details on combat pay, see
Military Pay Exclusion – Combat Zone Service
|
| Sales Tax Deduction — Taxpayers
who itemize deductions will have a choice of
claiming a state and local tax deduction for either
sales or income taxes on their 2004 and 2005
returns. The IRS will provide optional tables for
use in determining the deduction amount, relieving
taxpayers of the need to save receipts throughout
the year. Sales taxes paid on motor vehicles and
boats may be added to the table amount, but only up
to the amount paid at the general sales tax rate.
Taxpayers will check a box on Schedule A, Itemized
Deductions, to indicate whether their deduction is
for sales or income taxes.
|
| Expense Limit for SUVs —
Businesses should be aware of a change regarding the
deduction for certain sport utility vehicles (SUVs)
placed in service after Oct. 22. Under the American
Jobs Creation Act of 2004, businesses cannot take a
first-year deduction of more than $25,000 for an
SUV. The business would depreciate the remaining
cost. (The limit for vehicles placed in service
before Oct. 23 was $100,000.) The new limit does not
affect other types of property where the taxpayer
decides to expense the cost instead of depreciating
the property.
|
| Sale of Personal Residence
Acquired in a Like-kind Exchange — Taxpayers who
convert rental property to a principal residence
should know that a tax law change may limit their
ability to exclude gain on the sale of that
residence if they obtained the property through a
like-kind exchange. Generally, a taxpayer can
exclude up to $250,000 of gain on the sale of a
home, provided the individual has owned and used it
as a principal residence for two out of the five
years before the sale. The exclusion is $500,000 for
a married couple if both meet the use test. The
American Jobs Creation Act of 2004 does not allow
any exclusion if the taxpayer sells the home within
five years of acquiring the property through a
like-kind exchange. The new law applies to sales
after October 22, 2004.
|
| Deduction for Discrimination Suit
Costs — A new deduction is available for those who
pay attorney’s fees and court costs in connection
with discrimination suits. Taxpayers can take the
new deduction whether they itemize or not. The
deduction cannot exceed the amount includible in
income for the year on account of a judgment or
settlement resulting from the discrimination claim.
Generally, personal legal expenses are not
deductible, but an employee who incurs legal
expenses related to doing or keeping his job could
deduct these expenses on Schedule A as a
miscellaneous itemized deduction. However, under
The American Jobs Creation Act of 2004, an
individual with legal fees and court costs arising
from a discrimination suit may deduct the costs
directly from income on the front of the tax return;
this is known as an above-the-line deduction.
Under this new deduction, amounts paid for
attorney’s fees and court costs are deductible in
computing alternative minimum tax, and are not
subject to the 2 percent floor on miscellaneous
itemized deductions or the overall limitation on
itemized deductions. The Act, signed into law on
Oct. 22, 2004, describes the discrimination claims
qualifying for this new deduction. Only costs paid
after Oct. 22, 2004, for judgments or settlements
occurring after that date qualify for this
deduction. |
This article is from the IRS website
HERE.
Related Articles:
Military Tax Relief
Military Tax Relief 2
Military Spouse
Careers
American Jobs
Creation Act of 2004
Missed Tax
Deductions |
|
|
