Q I’m getting ready to file my 2004 federal income taxes. Are there any changes in the tax code I should know about?
A The federal tax code changes every year as Congress and the president push through tax breaks, close loopholes and introduce new deductions and credits. But while two major tax-related laws – the Working Families Tax Relief Act and the Job Creation Act of 2004 – were passed last year, changes in the tax codes have been surprisingly limited for 2004 filers.
“Most of the changes from these laws really don’t kick in until next year,” said Jackie Perlman, senior tax research coordinator for H&R Block Inc. in Kansas City. “But there’s always something new that people should be aware of.”
The biggest change is that filers may now choose to deduct their state sales tax instead of state income tax if they itemize their personal deductions. State income tax has always been an option for filers who fill out Schedule A instead of taking the standard deduction. But for people from states without income tax – Alaska, Florida, Nevada, South Dakota Texas, Wyoming and Washington – can now benefit from a state deduction.
“If you live in a high-tax state, or you have income in a state where the rate is pretty high, then state income taxes would be higher, and you take that deduction,” said Joe Battaglia, tax director at the accounting firm Deloitte &Touche. “It’s the people who live in states that do not have an income tax and don’t have a non-resident tax, those are the states where people will benefit.”
Thankfully, filers won’t have to account for every bit of sales tax they paid over the year. The IRS includes a table, based on your state and income level, with which you can estimate the tax you paid. You can use the tax paid on large purchases – like a car, boat or house – instead of the standard deduction if it’s higher.
Aside from that, the usual inflation-adjusted deductions will rise again. Business mileage that has not been reimbursed can be deducted at 37.5 cents per mile, up from 36 cents per mile last year. Mileage for medical purposes or for charity – transportation provided to a charity or even driving to and from an event – can be deducted at 14 cents per mile.
Americans who donated to tsunami relief efforts in January, and have records of those contributions, can choose to deduct that contribution from their 2004 taxes, or save the deduction for 2005. If more than one contribution was made, those individual contributions can be split between the tax years, Battaglia said.
For the current tax year, filers should be aware of a change in the tax laws regarding donated vehicles, Perlman said. In past years, including 2004, filers could take a reasonable deduction for a donated vehicle based on the value of the car.
Associated Press
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