4 Corporate Drive, Shelton, CT 06484 Phone: 800.529.9295 Web: www.ncnp.com
Working Families Tax Relief Act of 2004
September 2004
To Our Clients and Friends:
As you probably have heard, Congress on Sept. 23 passed the Working
Families Tax Relief Act of 2004. The act extends the life of several tax
breaks for individuals and businesses created by earlier legislation but that
expired or were scheduled to expire at the end of the year.
Here’s a look at the main provisions of the new tax law. The extensions of AMT
relief may have the biggest impact on your tax liability. Please contact us for
a fuller explanation of specific provisions and how you can best take advantage
of them.
INDIVIDUALS
Extensions through 2005 for expired provisions:
Alternative minimum tax (AMT). Some regular income tax credits,
including the Child and Dependent Care, Hope, and Lifetime Learning credits,
continue to also be allowed for AMT purposes.
Archer Medical Savings Accounts (MSAs). These can continue to be
created, provided the number of accounts doesn’t exceed statutory limits.
Deductible educator expenses. The above-the-line deduction for up
to $250 of qualifying classroom expenses continues to be available for
qualifying elementary and high school educators.
Extension through 2005 for provision scheduled to expire after 2004:
AMT. For single and head of household taxpayers, the exemption
amount, previously scheduled to go down to $33,750 in 2005, will remain at
$40,250. For those filing jointly, it will stay at $58,000 instead of dropping
to $45,000. And for married filing separately, it will remain at $29,000 instead
of going down to $22,500.
Extensions through 2010 for provisions scheduled to expire after 2004:
10% rate bracket. The top of the bracket for single and married
filing separately, previously scheduled to go down to $6,000 in 2005, will
remain at $7,000. For married filing jointly, it will stay at $14,000 instead of
dropping to $12,000. (The $10,000 amount for heads of household wasn’t scheduled
to change.) The tops of the 10% bracket for all filers also will be indexed for
inflation.
Marriage “penalty.” The 15% bracket for married filing jointly,
previously scheduled to go down to 180% of that for singles, will remain at
200%. The standard deduction for married filing jointly will also stay at 200%
instead of dropping to 174% of that for singles.
Child credit. Previously scheduled to drop to $700 in 2005, this
credit will remain at $1,000.
Postponement until 2006:
Phaseouts for the Electric Vehicle credit and the deduction for clean-fuel
vehicles. The credit and deduction, previously scheduled to phase out
starting in 2004, won’t begin to phase out until 2006. (This also applies to
businesses.)
New provision effective starting in 2005:
Definition of “qualifying child.” The act establishes a
three-prong (relationship, residence and age) test to determine whether someone
is a qualifying child for the purpose of a variety of tax breaks, though
different age limits will continue to apply as under prior law.
BUSINESSES
Extensions through 2005:
Credits. Those extended include the Research and Development, Work
Opportunity, Welfare-to-Work, and Energy Produced From Renewable Resources
credits.
Deductions. These include costs for environmental remediation, as
well as charitable contributions of computer technology and equipment for
educational purposes.
NOTE: The 50% bonus depreciation, scheduled to expire Dec. 31, 2004 , has
not been extended by this act.
NCNP & Co. specializes in helping individuals and businesses minimize their
taxes and maximize their financial well-being. Our tax advisors would welcome
any questions you have about these or other aspects of tax law. Please call us
at 800-529.9295 and let us know how we can be of assistance.
Best regards,