Health Savings Accounts

2. Key Changes Health Savings Accounts • Effective 2004 • For individuals with high-deductible health plans and not eligible for Medicare • Tax-deductible contributions • Tax-free earnings • Tax-free distributions for qualified medical expenses

3. Key Changes Education Deduction • Tuition deduction increases from $3,000 to $4,000 • Above-the-line deduction

4. Key Changes 2004 Act Extends Tax Breaks to 2010 • $1,000 child tax credit • Expanded 10 percent tax bracket • Marriage penalty relief

5. Key Changes 2004 Act Extends Tax Breaks Additional Tax Breaks: • One year-extension for AMT relief • $250 above-the-line deduction for qualifying elementary and high school educator expense--extended through 2005

6. Key Changes New Provisions and Tax Breaks • Uniform definition of “qualifying child” simplifies code • New treatment of combat pay for earned income credit and refundable child tax credit

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

8. The Basics 2004 Tax Rates • 10% • 15% • 25% • 30% • 33% • 35%

9. 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

10. The Basics Standard Deduction Taxpayers 65 and older or blind getadditional 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

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

12. 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 filingseparately $107,025 $168,275

13. 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

14. Tax Strategies for Life • Family • Education • Home • Investments • Retirement

15. Family Strategies • Child Credit • Adoption Credit • Dependent Care Credit • Earned Income Credit • Shifting Income

16. Family Strategies 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

17. 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

18. Family Strategies Dependent Care Credit • 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

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

20. Family Strategies Shifting Income • Make gifts to children • Transfer appreciated stock to children • Hire your child

21. Education 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

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

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

24. 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

25. Homeowner 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

26. Homeowner Strategies Selling Your Home • 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

27. Investment 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

28. 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

29. 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

30. Retirement Strategies Employer-Sponsored 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

31. Retirement Strategies IRAs • $3,000 is maximum 2004 contribution • $6,000 for married couples • $500 additional catch-up contribution for age 50 or older • Phase-out ranges apply • Open by April 15, 2005

32. Business Strategies Structure • C Corporation • S Corporation • Limited Liability Company • Partnership • Sole proprietor

33. 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 • Phase-out rules apply

34. Business Strategies Bonus Depreciation Deduction • 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

35. 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

36. Year-End Tips 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

37. 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

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

39. 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